Roger E. Clark, Esq. Attorney for The Environmentalists
905 Denston Drive Ambler, PA 19002-3901
phone: 215.643.2364 fax: 215.628.2630
e-mail: [email protected]
December 2, 1997
James McNulty, Prothonotary Pennsylvania Public Utility Commission North Office Building P.O. Box 3265 Harrisburg, PA 17105-3265
Re: Application of Peco Energy Company for Approval of Its Restructuring Plan Docket No. R-00973953
Petition of Enron Energy Services Power Inc. for Approval of an Electric Competition and Customer Choice Plan
Docket No. P~00971265 (Consolidated)
DOCUMENT Dear Mr. McNulty:
Enclosed please find two copies of the Environmentalists' brief in the above-captionecL I proceeding. I have also enclosed a computer diskette with the brief in electronic format.
The brief is being served on all parties of record in accord with the attached Certificate of Service.
Sincerely,
Roger E. Clark Attorney for The Environmentalists
Enclosures: Brief of the Environmentalists Certificate of Service Computer diskette
Copies: The Honorable John M. Quain The Honorable Robert K. Bloom The Honorable John Hanger The Honorable David W. Rolka The Honorable Nora Browneli
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rn
co
The Honorable Marlane R. Chestnut The Honorable Charles E. Rainey, Jr. Cheryl Walker Davis, Off. of Special Assts.
All Parties of Record
I I I 1 I I 1 I I
BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION
APPLICATION OF PECO ENERGY COMPANY FOR APPROVAL OF ITS RESTRUCTURING PLAN
PETITION OF ENRON ENERGY SERVICES POWER, INC. FOR APPROVAL OF AN ELECTRIC COMPETITION AND CUSTOMER CHOICE PLAN
Docket No. R-00973953
Docket No. P-00971265 (consolidated)
Brief of The Environmentalists
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Attorney for the Environmentalists:
Roger E. Clark 905 Denston Drive Ambler, PA 19002
215-643-2364 phone 215-628-2630 fax
D i i
Table of Contents
I. Introduction 1 A. Searching for Signs 1 B. The Three Tests 2 C. The Issues 4
II. Determining Stranded Costs 5 A. Introduction 5 B. Quantifying Stranded Costs 7
1. Introduction 7 2. Stranded Generating Assets 7 3. The Environmentalists' Recommendation for
Reducing the Quantification Uncertainty 9 C. Mitigating Stranded Costs 10 D. Sharing the Burden of Stranded Costs 11 E. Other Stranded Costs 12 F. Recovering Stranded Costs 12
1. The recovery period should be no longer than necessary 13
2. The recovery should be capped and reconcilable by class ^ 14
3. The recovery should be level over the; recovery period 15
III. Unbundling the Rates 16 A. Introduction 16 B. The CTC / ITC Charge 16 C. The Generation Credit 18 D. Summary of The Environmentalists' Unbundled Rates 20
IV. Preventing Market Domination 21 A. Introduction 21 B. The Default Customer - The Failure to Choose 23 C. The Default Supplier Group 24 D. Allocating Default Customers 25
V. Universal Service 26 A. Introduction 26 B. The Expansion of Universal Service 27 C. LIURP 27 D. CAP Rate 28 E. Renewable Energy Pilot 29 F. Consumer Protection 29 G. Allocation of Universal Service Costs 30 H. Public Input 31 I. Administration 32
VI. Distributed Energy 32 A. Introduction 32 B. Net Metering 33 C. Interconnection 34
VII. Consumer Information and Education 34 A. Introduction 34 B. Consumer Education 36 C. Consumer Information 37
VIII. Transmission and Distribution Planning 37 A. Introduction 37 B. The Need for Life-Cycle Cost Analysis of Alternatives to Line
Upgrades 38
IX. Nuclear Decommissioning 38 A. Introduction 38 B. Nuclear Decommissioning is Not a Stranded Cost 39 C. The Need for an External Fund 39 D. Cost-Benefit Analysis of Early Retirement 40 E. Spent Nuclear Fuel 40
X. Sustainable Development Fund 41 A. Introduction 41 B. The Mission and Structure of the Sustainable Development
Fund 42 C. The Budget of the Sustainable Development Fund 42
XI. Conclusion 43
Proposed Findings of Fact Appendix A
Proposed Conclusions of Law Appendix B
Tables and Graphs
The Three Tests 2
PECO's Changing Estimates of its Generating Assets Market Value 8
The Environmentalists' Recommendations on Stranded Costs (Table 1) 13
The Environmentalists' Principles in the Recovery Mechanism 14
Proposed CTC/ITC (Table 2) 17
Proposed CTC/ITC (graph) 18
Proposed Generation Credits (Table 3) 19
Proposed Generation Credits (graph) 19
The Environmentalists' Recommendations on Unbundled Rates (Table 4) 20
The Environmentalists' Recommended Public Interest Standards
for Participating in the Default Supplier Group 24
The Need for Universal Services in the PECO Service Territory 27
The Mission ofthe Sustainable Development Fund 42
///
Brief of the Environmentalists Page 1
I. Introduction
A. Searching for Signs
Michelangelo described his creative process not as sculpting statues but as
"liberating the figure from the marble that imprisons it." He would study the block of
marble for "signs of life" and when he saw the figure's form inside, he would chip away at
the marble and liberate the figure within.1 Like the Renaissance artist, the Pennsylvania
Public Utility Commission ("the Commission") is facing a huge mass of written testimony,
exhibits, hearing transcripts and other record evidence. It is looking for signs ofthe form
of the new restructured marketplace it must now create for Pennsylvania.
In this brief, the Environmentalists2 will try to share our vision ofthe new
marketplace, where:
... consumers have access to adequate, safe, clean, reliable and efficient energy services at fair and reasonable prices at the lowest long-term cost to society.3
We believe that the components of this vision are before us in the record of this
proceeding involving the PECO Energy Company ("PECO"). Now some very skilled
chipping away must be done by the Commission.
1H.W. Janson, History of Art: A Survey ofthe Major Visual Arts from the Dawn of History to the Present Day, Prentice-Hall, Inc. and Harry W. Abrams, Inc, Revised and Enlarged Edition, 1970, p. 10.
2The Environmentalists consist ofthe Clean Air Council, the Sierra Club, the Philadelphia Solar Energy Society, the Energy Coordinating Agency, the Grass Roots Alliance for a Solar Pennsylvania and the Nonprofits Energy Savings Investment Program.
3This is the goal which begins The Environmentaiists' Vision for the New Electricity Marketplace. This two-page document, drafted by the client group, is in this proceeding's record as Exhibit DS-2 of Environmentalists' Statement 1-S (David Schoengold).
Brief of the Environmentalists Page 2
B. The Three Tests
In determining which ideas to keep and which to discard, the Environmentalists
urge the Commission to apply three tests. The first test is whether the offered proposal is
in the public interest. For the Environmentalists, the public interest is found in the answers
to three questions: is it good for the consumer, is it good for competition, and most
important for the Environmentalists, is it good for the environment?
By asking the first question, is it good for the consumer, we mean will consumers
see a meaningful cut in electricity prices? Will the benefits of restructuring be shared by
all customer classes? Will low income consumers have access to essential electric
services on reasonable terms and
The Three Tests
(1) Is the proposal in the public interest? Is it good for consumers? Is it good for competition? Is it good for the environment?
(2) Is the proposal consistent with the Act?
(3) Are the rates and charges imposed by the proposal just and reasonable?
conditions and will they be able to
participate in the new market? Will
consumers receive the information and
education they need to meaningfully
participate in the new market?4
The second question under the
public interest test is whether the proposal is good for competition. Pennsylvania will
realize the benefits of restructuring only if the Commission succeeds in creating a robust
and vibrant competitive marketplace. Do the stranded cost recovery and the unbundled
energy prices allow for meaningful competition? Is the market domination ofthe
monopoly utility constrained? Are fair rules developed and enforced which prevent
''Consumers need to understand the basic workings of the electric system and how it will change under restructuring. All of us have heard consumers ask if their lights will go out if the supplier they chose goes out of business. Misunderstanding of this type will interfere with the proper functioning of the market.
Brief of the Environmentalists Page 3
restraint of trade and other practices? As one ofthe parties noted in its brief in the retail
access pilot proceeding, "[t]his Commission cannot take competition for granted."5 In
evaluating the results ofthe Act and the Commission's implementation of it, people will
look first and foremost to whether the Commission succeeds in producing a competitive
market.
The third and final question ofthe public interest test is whether the proposal is
good for the environment. Does the proposal help reduce adverse public health and
environmental consequences ofthe production, transmission, distribution and use of
electricity? Does the proposal support energy conservation and efficiency, renewable
energy and other clean energy alternatives? Does the proposal advance a sustainable
energy future for Pennsylvania? The Environmentalists believe that the new marketplace
must reflect these critical, long-term public goals and not simply be a mad rush for the
next cheap kilowatthour.
The second test which the Environmentalists urge the Commission to apply in its
decision-making is whether the proposal is consistent with the Electricity Generation
Competition and Customer Choice Act ("the Act")6. While the Commission has been
working to implement many elements ofthe Act since it was enacted on December 3,
1996, this restructuring Order will be the first time that the Commission will rule on some
of its more complex and contentious provisions.
sDocket P-00971168 ef ai, Main Brief of Conectiv Energy (August 13, 1997), page 2. They note that despite the necessary legislative and regulatory actions, neither the telecommunications industry nor the natural gas industry has yet to experience successful competitive markets.
666 Pa.C.S. §§2801 etseq.
Brief of the Environmentalists Page 4
The third test for restructuring proposals is whether the rates and charges imposed
are just and reasonable. The Act did not repeal the Public Utility Code, it simply added a
new chapter to the existing body of public utility law. The Code's standards of just and
reasonable rates, used and useful and the other sections ofthe Public Utility Code are still
the law. They must apply to the new rates imposed by the restructuring plan.
C. The Issues
In reviewing the long list of issues which have been raised in this proceeding, the
Environmentalists suggest that they fall into two groups. The first tier are the issues which
are most critical in the Commission's Order: the quantification and treatment of stranded
costs, the unbundling of rates, and the actions to be taken to prevent market domination
by the existing monopoly utility. The Commission's determination of these three issues
will control the form ofthe new electric marketplace. The Environmentalists'
recommendations on each of these issues are addressed in the next three sections of this
brief.
In addition to these three fundamental issues, there is a second tier of important
issues concerning such topics as universal service, energy conservation, renewable
energy, distributed power, consumer information and education, and Pennsylvania's
sustainable energy future. The Environmentalists' recommendations on these issues
make up the balance of this brief.
The Environmentalists contend that neither the Joint Petition for Partial Settlement
("the Partial Settlement") nor the Enron Customer Choice Plan ("the Choice Plan") should
be adopted as submitted. Instead, the Commission should evaluate all of the evidence
Brief of the Environmentalists Page 5
and positions which have been presented by the various parties and selectively fashion its
own restructuring Order for PECO. It is time for the Commission to pick up the hammer
and chisel and to start chipping away to create Pennsylvania's new electric marketplace.
II. Determining Stranded Costs
A. Introduction
Peter Bradford sounded the call as to what is at stake in the debate over stranded
costs:
Strandable investment is the public's best road to an effectively competitive and an environmentally acceptable future. Regulators, legislators and others in the public sector must not give it away until that future is well secured. The opportunity for recovery of a substantial amount of stranded costs should be expressly conditioned on full utility cooperation in achieving the best result for customers and the environment in the years ahead.7
What will Pennsylvania have to show for the payment of stranded costs in this
proceeding? Will we make an investment in a sustainable energy future by creating the
Sustainable Development Fund? Wll we have net metering and interconnection rules
which will facilitate the development of new, clean energy technologies? Will we have a
new commitment to energy conservation and efficiency? Will we have universal service
programs that make energy bills affordable by reducing consumption rather than simply
subsidizing it? Will we be on the road to adequate, safe, clean, reliable and efficient
energy services at fair and reasonable prices at the lowest long-term cost to society? The
Environmentalists hope the answer to all of these questions is yes.
7CEPA et al. Statement of Peter Bradford, p. 13,1. 5-9.
Brief of the Environmentalists . Page 6
The quantification of stranded costs will be the linchpin ofthe Commission's
restructuring order. A higher stranded cost award means a higher Competitive Transition
Charge and/or a higher Intangible Transition Charge ("CTC" and "ITC") in the unbundled
rates. Because ofthe rate cap,8 a higher CTC/ITC means a lower generation credit, which
means that less ofthe bill is subject to competition and customers have less opportunity to
obtain savings from alternate suppliers. This means that alternate suppliers have a
tougher time entering and staying in the market and robust competition fails to develop
and the promise ofthe Act is unfulfilled.9
These issues are important to the Environmentalists because the absence of
competition will, according to Environmentalists' witness David Schoengold, "slow down
the introduction of new, clean generating options (both fossil-fueled options and
renewable resource options)." In addition, a high stranded cost recovery "will indirectly
subsidize existing generation ... including older inefficient, polluting units"10 and these
emissions "will make it more difficult to maintain air quality at levels sufficient to protect
human health and property." This in turn may "impose restrictions on economic
development, constraining the siting of manufacturing operations or competitive power
producers."11 How the Commission treats stranded costs will have a very large impact on
the fate ofthe current generation of polluting and unsafe generating plants and whether
and when Pennsylvania moves to a new and healthier electric future for our children.
866 Pa.C.S. §2804(4).
These relationships are described in NEV Statement No. 1 (David Boonin), p. 13,1. 28 to p. 14,1. 10 and NEV Statement No. 1-SR (David Boonin), p. 1,1. 28 to p. 2,1. 7.
^Environmentalists' Statement No. 1-S (David Schoengold), p. 4,1.15-22.
"Environmentalists' Statement No. 1-S {David Schoengold), p. 5,1. 14-17.
Brief ofthe Environmentalists Page 7
B. Quantifying Stranded Costs
1. Introduction
The Joint Settlement (and the Choice Plan) include several different categories of
stranded costs, including stranded generating assets, stranded regulatory assets, nuclear
decommissioning, fossil fuel decommissioning and other transition costs. The
Environmentalists have addressed some of these categories in filed testimony, and for
others we have adopted the recommendations of other parties.
2. Stranded Generating Assets
Approximately 60% of PECO's total stranded cost claim is its calculation of $4,484
billion of stranded generating assets. This claim was calculated by taking the "value" of its
generating assets under regulation and
subtracting from it the value of those same
assets in the free market. The market value
estimate involves 30+ year projections of every
important variable in the business, including
electricity prices (expressed on an hourly
basis), customer consumption and demand, the hourly output of all of its generating
plants, and the O&M and capital costs (including such things as life extensions,
environmental compliance, 1 2 etc.). It is the sort of exercise which makes consultants
wealthy. In the Partial Settlement, the stranded generating asset claim of $4,484 billion is
"The difficulty in accurately predicting the future is one of the reasons that many utilities are in difficult positions today with respect to stranded assets."
David Schoengold Environmentalists' Statement
No. 1-S, p. 22,1. 3-5.
12One example of the "fictional" aspects of this analysis is that PECO assumes no future changes in emission standards or other environmental regulations. No new compliance costs are shown for the EPA's recently adopted ozone and small participate regulations. Is the probability really zero that in the next 30 years, we will see no standards to reduce carbon dioxide emissions?
Brief of the Environmentalists Page 8
PECO's Changing Estimates of its Generating Assets' Market Value
the difference between a regulated value of $6,787 billion minus a market value of $2,303
billion.13
At least that is the number which PECO is using most recently. Between January
and August of this year, PECO has presented four quite different estimates ofthe market
value of its generating assets, due to changing
market price estimates and other assumptions.
In its initial filing ofthe securitization
application on January 22, 1997, PECO stated
the market value of its generation plant was
$2,568 billion.14 By early March, the market
value estimate in the securitization case
increased 15% to $2,948 billion.15 In the April 1, 1997 restructuring filing, the market value
decreased by 3% to $2,863 billion16 and in the August 25, 1997 Partial Settlement, the
market value dropped an additional 20% to $2,303 billion.17
These changing numbers reflect the inherent inadequacy of PECO's methodology
for quantifying its stranded costs. As David Schoengold testified,
[t]he key problem is its sensitivity to the input parameters. While this might not be so much of a problem if the method is
$3.00
= $2.75 Q O $2.50
| $2.25
$2.00 JAN MAR APR
1997 Est imates AUG
13Joint Petition for Partial Settlement, TJ 18, p. 17. See also PECO Statement No. 1 (Thomas Hill), pp. 9-16.
14Application of PECO Energy Company for Issuance of a Qualified Rate Order, Docket No. R-00973877, Statement No. 1 (Thomas Hill), p. 11,1.12.
1sApplication of PECO Energy Company for Issuance of a Qualified Rate Order, Docket No. R-00973877, Statement No. 1-R (Thomas Hill), p. 12,1. 12-13.
16PECO Statement No. 1 (Thomas Hill), p. 14,1. 8.
17Joint Petition for Partial Settlement, H 18, p. 17.
I I I
1
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Brief ofthe Environmentalists Page 9
used in a way that allows for regular corrections, the Partial Settlement is based on a one-time use ofthe method to arrive at a CTC, with no mechanism for adjusting the CTC if
•
conditions change. A small difference in the estimate of market price can make a huge difference in the calculated level of assumed stranded generating assets. A few tenths of a cent
•
difference in market price can mean hundreds of millions of dollars in stranded costs. For example, a 0.4 cent per kWh difference in market price meant a $788 million stranded cost difference in the initial PECO restructuring filings.18
Based on such shaky numbers, the Joint Settlement seeks to collect billions of dollars
| from ratepayers over the course of a decade. The Environmentalists contend that any
such charges would be so fraught with uncertainty as to make them anything
but just and reasonable unless an alternative approach is taken to reduce the uncertainty.
3. The Environmentalists' Recommendation for Reducing the Quantification Uncertainty
The Environmentalists' recommendation to deal with the inherent uncertainty in the
quantification ofthe stranded generating assets is a tracking account mechanism which
would allow the generating asset value to vary with changes in electricity market prices.
The quantification ofthe value of generating assets would not be set in stone by the
Commission's Order, but would be subject to adjustment each year at the Commission's
annual review of CTC collections under 66 Pa.C.S. §2808(f).19 This approach was also
proposed and recommended by New Energy Ventures20
^Environmentalists' Statement No. 1-S (David Schoengold), p. 21,1. 5-14.
^Environmentalists' Statement No. 1-S (David Schoengold), p. 26,1.15-22.
20NEV Statement No. 1 (David Boonin), Ex. DMB-4.
Brief ofthe Environmentalists Page 10
C. Mitigating Stranded Costs
The Act imposes upon the utilities the undeniable responsibility to mitigate their
stranded costs. The definition of "transition or stranded costs" are certain costs "which the
commission determines will remain following mitigation by the electric utility."21 Another
section ofthe Act directs the Commission to consider "the extent to which the electric
utility has undertaken efforts to mitigate generation-related transition or stranded costs by
appropriate means in a manner that is reasonable under all ofthe circumstances..." and
cites several specific mitigation strategies which should be considered.22 It is interesting to
note that the mitigation must be "commensurate with the magnitude ofthe ... stranded
costs" and that the duty to mitigate exists not just up to the filing of the restructuring plan,
but extends throughout the transition period.23
One proven mitigation strategy which PECO has reduced rather than expand in the
recent past is demand-side management. Energy conservation and load management
mitigate stranded costs because they
reduce the retail allocation of PECO's
stranded generating assets by reducing net
retail peak load and freeing up capacity and
energy for wholesale transactions. Environmentalists' witness David Schoengold
estimated that a program of cost-effective DSM could "mitigate retail stranded asset costs
By reducing net retail peak load and freeing up capacity and energy for wholesale transactions, a meaningful energy conservation and load management program could mitigate PECO's stranded costs by $1 billion.
2 166 Pa.C.S. §2803, definition of "Transition or stranded costs.".
2 266 Pa.C.S. §2808(C)(4). This is another reason to recommend the trading account mechanism for the quantification of stranded costs.
23, 66 Pa.C.S. §2808(C)(4).
Brief of the Environmentalists page 11
by as much as $1 bi l l ion." 2 4 One of his recommendat ions was to double the Low-Income
25 Usage Reduction Program budget from $4 million a year to $8 million a year.
D. Sharing the Burden of Stranded Costs
One of the policy declarations contained in the Act is that:
[i]n moving toward greater competition in the electricity generation market, the Commonwealth must resolve certain transitional issues in a manner that is fair to customers, electric utilities, investors, the employees of electric utilities, local communities, nonutility generators of electricity and other affected parties.26 [emphasis added]
In responding to this theme of a fair sharing ofthe responsibility, Environmentalists'
witness David Schoengold testified:
... I believe that in a situation such as PECO's where there is a huge economic loss to address, it is not appropriate for the customers to have to bear the full responsibility for that loss and for the stockholders to receive a full return on their investment as well as return oftheir investment. I doubt that PECO's management would honestly try to claim that the company bore absolutely no responsibility for causing any of the stranded cost. 100 percent recovery ofthe stranded generating asset costs puts 100 percent ofthe responsibility for the economic losses on the customers and 0 percent on the company.27
Mr. Schoengold developed a model which examines depreciation, remaining rate
base and returns on rate base year by year. He determined that stockholders made an
initial investment of $5,952 billion in the generating assets and have been allowed a total
^Environmentalists' Statement No. 1-S (David Schoengold), p. 31,1. 24-25.
"Environmentalists' Statement No. 1-S (David Schoengold), p. 34,1. 11-18.
2 S66 Pa.C.S. §2802(8).
"Environmentalists' Statement No. 1-E (David Schoengold), p. 40,1. 4-14.
Brief of the Environmentalists Page 12
recovery of $7,818 billion, or 149% of the original investment and an internal rate of return
of their investment to date of 8.1%. He then went on to analyze the level of stranded
generating asset cost recovery which would
be necessary to pay off the debt holders A stranded generating asset recovery of $1,152 billion would allow PECO to pay off the debt holders and to provide the stockholders with a return of, and a 8.1% return on, their investment. and to provide the stockholders with a
return of their investment and an 8 .1%
return on their investment. He determined that this level was $1.152 billion, or 25.7% of
the Partial Settlement's generating asset stranded claim of $4,484 billion. And as Mr.
Schoengold stated, an " 8 . 1 % return on a bad investment seems quite reasonable."
The Environmentalists recommend that the Commission adopt Mr. Schoengold's
analysis and reduce the stranded generating asset recovery to no more than $1,152
billion.
E. Other Stranded Costs
The Environmentalists have evaluated the evidence presented by the other parties
in this proceeding and have determined which recommendations for stranded costs are
most reasonable. These figures we recommend be used by the Commission are
summarized on the following page in Table 1.
F. Recovering Stranded Costs
Once the stranded costs have been quantified, the task is then to design the
recovery mechanism which wil l"... provide the investors in Pennsylvania electric utilities
with a fair opportunity to fully recover the amount of transition or stranded costs that the
Brief of the Environmentalists Page 13
Table 1: The Environmental is ts ' Recommendat ions on Stranded C o s t s
Cateqorv Partial Settlement Environmentalists
Generating assets $4,484 billion Regulatory assets $2,272 billion Nuclear decommissioning $0,234 billion Fossil decommissioning $0,127 billion Other transition costs $0,033 billion
$1,152 billion $1,657 billion $ 0 $ 0 $0,033 billion
(D (2) (3) (4) (5)
TOTAL $7,150 billion $2,840 billion x 96.2%
$2,732 billion
(6)
Notes: (1) (2) (3) (4) (5) (6)
Environmentalists' Statement 1-S (David Schoengold), p : 40. OCA Statement 1-S (Richard Capra), Ex. RLC-2, p. 2 (Revised). OCA Statement 1-S (Richard Capra), Ex. RLC-2, p. 1 (Revised). OCA Statement 1-S (Richard Capra), Ex. RLC-2, p. 1 (Revised). OCA Statement 1-S (Richard Capra), Ex. RLC-2, p. 1 (Revised). Retail jurisdictional fraction from Environmentalists' Statement 1-
(David Schoengold), Exhibit DS-7, Schedule 1. S
commission determines to be just and reasonable."28 The Environmentalists recommend
the following principles in designing this mechanism:
1. The recovery period should be no longer than necessary.
The Act provides for a CTC collection period which would end on December 31,
2005,29 but both the Partial Settlement and the Choice Plan extend the recovery for an
additional three years. Both choose to delay the major rate cuts which come at the end of
the CTC recovery so they can provide a slightly larger rate cut now, but as the
2866 Pa.C.S. §2804(14) 2966 Pa.C.S. §2808(b). A longer recovery period is permitted for "good cause."
Brief of the Environmentalists Page 14
The Environmentalists' Principles on the Recovery Mechanism
1. The recovery period should be no longer than necessary.
2. The recovery should be reconcilable. 3. The recovery should be level over the recovery
period.
Commission's Data Request Set III
highlighted, this only increases the total
costs to ratepayers. Since the CTC/ITC
charge is a stone around the necks of
ratepayers and a distortion of the true
competitive market, it should be with us no longer than necessary. The Environmentalists
support the seven year recovery period contained in the Act. As David Schoengold
testified,"... it is preferable to finish up the stranded cost collection (and to achieve the full
benefits of competition) sooner rather than later."30
2. The recovery should be capped and reconcilable by class.
Because the CTC and the ITC are charges added to each kilowatthour, the total
recovery of each is directly dependent on the number of kilowatt-hours sold throughout the
collection period. Even a very small discrepancy between projected sales and actual
sales will result in a large difference in collections. In computing its CTC/ITC charges, the
Partial Settlement assumes that future load growth will be zero, but if load instead grows
at a modest 1%, the CTC/ITC collections will exceed the approved level by 7%.31 The
Partial Settlement's lack of a cap on CTC collection and the absence of any CTC
reconciliation are two of the agreement's most serious flaws. The Act directed the
Commission to "establish procedures for the annual review of the competitive transition
^Environmentalists' Statement No.l-E (David Schoengold), p. 12,1. 6-7.
^Environmentalists' Statement No 1-S (David Schoengold), p. 11,1. 16-22. The 7% figure is the increase in CTC recovery shown on Mr. Schoengold's table between 0% growth and 1% growth.
Brief of the Environmentalists Page 15
charge" and to "reconcile the annual revenues received from the charge" at the approved
level32 and it should do so.
In designing the reconciliation mechanism, it is critical to prevent cost shifting
between customer classes. CTC/ITC recovery should be set for each class and
reconciliation should occur within each class.33 This is important because ofthe different
growth rates for the different classes. For example, if high growth is experienced in the
residential class, and low growth in the industrial class and reconciliation was calculated
on a system-wide basis, CTC/ITC recovery would be shifted to residential customers from
the industrial customers.34 With reconciliation by class, the residential CTC/ITC charge
under this scenario would be reduced or shortened (to reflect the faster recovery) and the
industrial CTC/ITC charge would be increased or lengthened (to make up for the under
recovery).
3. The recovery should be level over the recovery period.
The Act implies straight amortization of stranded costs35 and this is appropriate.
The Environmentalists oppose both the Partial Settlement and the Choice Plan proposals
for unbalanced recovery of the CTC/ITC charges over the recovery period. Reconciliation
should be structured to recover the stranded costs in equal annual amounts. This will
3 266 Pa.C.S. §2808(f).
33This position is shared by others. See OCA Statement No. 4 (Lee Smith), p. 11-12.
^This hypothetical is exactly what has occurred this decade. The residential and commercial classes have experienced load growth, but the industrial class has seen a drop in number of customers, peak load and energy consumption. PECO 1997 Annual Resource Planning Report, in the record as Conectiv Cross-Examination Exhibit 2.
3 566 PaC.S. §2808(f).
Brief of the Environmentalists Page 16
conform to §2808(f) and will most closely resemble the market, where prices fluctuate
because of natural market conditions but not because of a misplaced attempt to engineer
rates.
III. Unbundling the Rates
A. Introduction
The Act requires "the unbundling of electric utility services, tariffs and customers
bills to separate the charges for generation, transmission and distribution."36 The other
explicit charge which is to be included in the bill is the CTC and the ITC. The unbundling
of rates is where the rubber meets the road for the ratepayers, for this tells customers
what part and how much of their bill they can take shopping for alternative suppliers and
what part and how much will continue to be tied to the monopoly utility.
B. The CTC / ITC Charge
The Commission has several issues to consider in designing the unbundled
CTC/ITC charge, including its total magnitude, the number of years it is collected and
whether it is flat, increases or decreases over the collection period.
The magnitude ofthe CTC/ITC is determined by the total authorized stranded cost
recovery and by the assumptions about sales. The Partial Settlement proposes to collect
the CTC/ITC for a period of 10 years, but the Environmentalists recommend a 7 year
collection period.
36, 66 Pa.C.S. §2804(3)
Brief of the Environmentalists Page 17
The CTC/ITC recommendations ofthe parties are summarized in Table 2 on the
next page. As can been seen in the figures, the parties took different approaches to the
annual level of the CTC/ITC kilowatt-hour charge. The Partial Settlement begins with a
high CTC/ITC which, after a slight rise, decreases throughout the collection period. Enron
starts with a low CTC/ITC which the increases. As discussed earlier, the
Environmentalists recommend that the CTC/ITC recovery be equal throughout the
collection period, and because ofthe assumption of a slight load growth, the kilowatt-hour
CTC/ITC charge is able to decrease slightly in the Environmentalists' proposal. 3 7
fable 2: Proposed CTC/ITC
(1) (2) (3) (4) (5) Year Settlement Enron Enviro MAPSA PECC
1999 3.04 2.11 1.88 2.19 2.01 2000 3.04 2.11 1.87 2.07 2.18 2001 3.14 2.73 1.85 2.45 2.29 2002 3.14 2.89 1.83 2.62 2.27 2003 3.14 2.95 1.82 2.69 2.28 2004 2.87 2.80 1.80 2.61 2.23 2005 2.77 2:65 1.78 2.52 2.22 2006 2.57 2.99 2.41 2.18 2007 2.47 3.32 2.76 2.15 2008 2.27 3.32 2.61 2.20
Sources: (1) Partial Settlement, Table A, p. 8. (2) Enron (EESPI) Statement 1-R (Steven Kean), Attachment A. (3) Environmentalists' 1-E (David Schoengold), Ex. DS-1, Sch. 1. (4) MAPSA Statement 1-S (Donald Johnstone), Schedule A. (5) NEV Statement 1-SR (David Boonin), Exhibit DMB-16
37As shown in Environmentalists' Statement No. 1-E, Exhibit DS-1, Schedule 2, David Schoengold's CTC/ITC computation repeated here was based on the regulatory asset recommendation of the OCA. For this number, he used $2,272 billion, as reported in PECO Statement No. 1-R (Thomas Hill), Exhibit TPH-16. The correct OCA figure is $1,657 billion as shown in OCA Statement No. 1-S (Richard LaCapra), Exhibit RLC-2,p. 2 (Revised). This will reduce the Environmentalists' recommended CTC/ITC charges below the level shown in this table.
Brief of the Environmentaiists Page 18
In addition, the CTC/ITC recommendations ofthe Partial Settlement, Enron and the
Environmentalists are shown graphically.
Proposed CTC/ITC
4.0
3.5
3.0 - C ^ 2.5
® i n Q.2.0
0)
<D
O 1 . 0
0.5
0.0
' 4
. --
/ /
7
19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 06
Settlement
Enron
Enviros
Year
C. The Generation Credit
The generation credit is the most critical number to both the ratepayers (because it
is the amount they can take shopping to find a lower price from another supplier) and for
the alternate suppliers (because the degree to which they can undercut the generation
credit will determine to a very large extent their ability to attract customers).
The generation credit recommendations ofthe parties are summarized in Table 3
on the next page. In addition, the generation credit figures ofthe Partial Settlement,
Enron and the Environmentalists are shown graphically. As can be seen in the graphic,
the generation credit in the Partial Settlement begins quite low and then rises quite
Brief of the Environmentalists Page 19
Fable 3: Proposed Generation Credits
(D (2) (3) (4) (5) (6) Year Settlement Enron Enviro MAPSA NEV PECC
1999 2.80 3.48 3.35 4.01 3.75 3.80 2000 2.80 3.48 3.45 4.13 3.81 4.02 2001 3.20 3.61 3.55 4.25 3.93 4.41 2002 3.50 3.75 3.66 4.38 4.07 4.61 2003 3.70 3.89 3.77 4.51 4.20 4.71 2004 3.97 4.04 3.88 4.64 4.34 4.93 2005 4.07 4.19 4.00 4.78 4.49 5.10 2006 4.77 4.35 4.12 4.93 4.64 5.29 2007 5.37 4.52 4.24 5.08 4.80 5.48 2008 5.57 4.52 4.37 5.23 4.88 5.68
Sources: (1) Partial Settlement, Table A, p. 8. (2) Enron (EESPI) Statement No. 1-R (Steven Kean), Attachment A. (3) Environmentalists' Statement No. 1-E (David Schoengold), Ex. DS-1, Sch. 1. (4) MAPSA Statement 1-S (Donald Jonhstone), Schedule A. (5) NEV Statement No. 1-SR (David Boonin), Exhibit DMB-16
. (6) PECC Statement No. 1-SR (Steven Mitnick), Ex. SAM-SR2
Proposed Generation Credits
6.0
5.5
5.0
4.5 0) CL (/> 4.0 •*—' C CU O 3 - 5
3.0
2.5 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08
Settlement
Enron
Enviro
Year
Brief of the Environmentalists Page 20
steeply. The generation credits proposed by Enron and the Environmentalists begin
higher than the Partial Settlement, but have a shallower slope.
D. Summary of The Environmentalists' Unbundled Rates
In the Partial Settlement, the unbundled rates are shown in Table A. 3 8 The
Environmentalists' version of this table is shown in Table 4.
Table 4: The Environmentalists' Recommendation on
Unbundled Rates (cents per kWh)
CTC/ Energy/ Discount Date Trans Dist ITC Capacity Total from 12/96
9/1/98 0.47 2.64 1.90 3.32 8.33 16.2 % 1/1/99 0.47 2.64 1.88 3.35 8.34 16.1 % 1/1/00 0.47 2.64 1.87 3.45 8.42 15.3% 1/1/01 0.47 2.64 1.85 3.55 8.51 14.4 % 1/1/02 0.47 2.64 1.83 3:66 8.60 13.5% 1/1/03 0.47 2.64 1.82 3.77 8.69 12.5% 1/1/04 0.47 2.64 1.80 3.88 8.79 11.6 % 1/1/05 0.47 2.64 1.78 4.00 8.89 10:6% 1/1/06 0.47 2.64 0.00 4.12 7.23 27.3 % 1/1/07 0.47 2.64 0.00 4.24 7.35 26.1 % 1/1/08 0.47 2.64 0.00 4.37 7.48 24.8 %
38 Joint Petition for Partial Settlement, Table A, p. 8.
Brief of the Environmentalists Page 21
IV. Preventing Market Domination
A. Introduction
A just and reasonable set of unbundled rates is an essential condition to creating a
robust competitive market, but an adequate generation credit alone is not enough to
ensure all customers have meaningful choices of electricity suppliers and services. The
Commission must also address the problem of market domination by PECO by virtue of its
status as the monopoly supplier in this region for the last century. As Environmentalists'
witness Bruce Biewald testified,
A great many of PECO's electricity customers are unlikely to make any choice at all regarding their electricity supplier... If PECO is designated the default supplier of these customers, then it will be granted a significant market share without incurring the marketing and transaction costs that would be required of competitive utilities. This formidable advantage would add to the numerous tangible and intangible competitive advantages that are typically enjoyed by incumbent utilities.39
To address the problem of market domination by PECO, the Environmentalists proposed
a system for allocating non-choosing customers to alternative suppliers serving PECO's
service territory. We call this the Better Choice Plan.40
Before reviewing the specifics of this proposal, it is important to understand the
distinction we are making between the concepts of "provider of last resort" and "default
supplier." The provider of last resort is the "entity that is assigned the responsibility of
^Environmentalists' Statement No. 2-E {Bruce Biewald), p. 2, I. 16 to p.3,1. 2.
4 0The genesis of the Better Choice Plan was the experience in the long distance telephone industry, where the Federal Communications Commission in 1985 sought to end the market domination of AT&T and encourage meaningful competition by setting up a market allocation pool of other carriers to provide long distance service to customers who failed to select a carrier. Enron (EESPI) Statement No. 3 (Douglas Bohi), p. 13-14.
Brief of the Environmentalists Page 22
ensuring that all electricity customers will have access to a reliable supply of electricity at
reasonable prices, terms and conditions."41 The provider of last resort is required to serve
customers who, for a variety of reasons, cannot obtain generation services from any
alternative supplier. The Act makes the electric distribution company the provider of last
resort42 and provides a funding mechanism to cover the cost of those services for those
unable to pay 4 3 The Environmentalists recommend that PECO be the provider of last
resort.44
The Better Choice Plan introduces the concept of "default supplier" which is very
different than the provider of last resort. The default supplier is the supplier that serves
the default customers, or those customers who are eligible
to choose an alternative generation supplier but have failed
to do so. Under the Settlement Proposal, PECO is the
default supplier and under the Choice Plan, Enron is the
default supplier. Under the Environmentalists' Better Choice Plan, a more diverse market
is created because the alternative suppliers active in the market can volunteer to become
part ofthe default supplier group which will serve the customers who fail to choose.
Before describing the mechanics ofthe proposal, two other concepts must be
addressed - the default customer and the default supplier group.
Default Supplier
Provider of Last Resort
^Environmentalists' Statement No. 2-E (Bruce Biewald), p. 29,1. 3-5.
4 266 Pa.C.S. §2807(e).
4 366 Pa.C.S. §2804(8) and (9).
""Environmentalists' Statement No. 2-E (Bruce Biewald), p. 31,1. 3 and Environmentalists Statement 3-E (Roger Colton), p. 5,1. 24-28.
Brief of the Environmentalists Page 23
B. The Default Customer - The Failure to Choose
It is widely acknowledged that when an industry moves from a regulated monopoly
to an open market, many customers stay with the monopoly supplier.45 Some argue that
these customers are "choosing not to choose" and that it is inappropriate to interfere in
this "choice." But Environmentalists' witness Roger Colton showed the error in this
argument:
Consumer choice implies that given an opportunity, a consumer will use his or her knowledge of available alternatives to translate wants into satisfaction.
In fact, however, considerable consumer research finds that there is no conscious exercise of discretion in the failure of consumers to choose an alternative supplier of service when an industry moves from a regulated monopoly to a competitive model. Indeed, "staying put" is the antithesis of exercising discretion. It is the failure to choose.46
Mr. Colton suggested three reasons why many customers fail to choose and noted
that the Better Choice Plan promoted competition by helping customers overcome all
three barriers:
In each case, jump-starting the competitive electric market will help address the factors that led to the consumer paralysis in decision-making. Allocating the non-choosing consumers among alternative suppliers will help generate consumer experience that will overcome confusion and skepticism. Allocating consumers among alternative suppliers will help generate experience in seeking out and understanding information. Allocating consumers will help overcome the
45For example, see Enron (EESPI) Statement No. 3 (Douglas Bohi), p. 13-14.
^Environmentalists Statement No. 3-E (Roger Colton), p. 2,1. 8-14.
Brief of the Environmentalists Page 24
simple consumer inertia that leads to a consumer failure to act.47
Mr. Colton testified that a transitional market mechanism such as the Better Choice Plan
was an appropriate and helpful response to these temporary customer difficulties.48
C. The Default Supplier Group
Under the Environmentalists' Better
Choice Plan, suppliers can volunteer to
participate in the default supplier group if
they agree to seven conditions. These
conditions, listed in the box to the right, are
designed to protect the customers and to
advance some important public interest
goals. This quid pro quo is fair and
appropriate because participation in the
group is entirely voluntary and the
participating suppliers receive from the
Commission the private benefit of an
allocation of default customers without
incurring the costs and effort to recruit
these customers.
The Environmentalists' Recommended Public Interest Standards for Participation in the
Default Supplier Group
1. The price for the generation services will be no higher than the unbundled generation rate that PECO will be allowed to charge.
2. Any default customer who elects to switch generation suppliers will not be charged a contract termination fee or other penalty.
3. The energy and capacity to serve default customers meets an environmental baseline comparable to the applicable Pennsylvania environmental regulations.
4. The resource mix includes at least one percent renewable resources and the supplier has a net metering tariff and other policies to facilitate the interconnection of small-scale clean and renewable energy generation.
5. Customers would be informed about the fuel mix, air emissions and other wastes (radioactive, solid and liquid) of all of its power sold in Pennsylvania, in a simple, uniform format.
6. The generation supplier would contribute 0.5 percent of its total Pennsylvania power revenues to the Pennsylvania Sustainable Development Fund.
7. Customers would be informed about the number and percentage of its work force that is employed in Pennsylvania.
^Environmentalists Statement No. 3-E (Roger Colton), p. 3,1. 23 to p. 6,1. 2.
^Environmentalists Statement No. 3-E (Roger Colton), p. 6,1. 2-5.
I I I I II
Brief ofthe Environmentalists Page 25
D. Allocating Default Customers
The Better Choice Plan49 begins with customers selecting their generation
suppliers, just as they would under the Act and the other proposals. At no time does the
Better Choice Plan interfere with any election by any customer to be served by a particular
supplier. A customer will always be able to select a particular supplier and that selection
will prevail. The Plan envisions that an enrollment period for customers will begin on
January 1, 1999, January 1, 2000 and January 1, 2001 5 0 and eligible customers will select
their generation suppliers at those times. After a reasonable time following the opening of
the eligibility, the results ofthe selection process will be published and evaluated to
determine PECO's share ofthe customers.
The PECO share would include (1) the customers who had made an affirmative
selection of PECO, (2) the customers who had made an affirmative selection of one of
PECO's affiliated generation suppliers,51 and (3) the default customers {i.e. those who
failed to make any selection at all). If the PECO share is less than 50%, nothing further
would happen under the Better Choice Plan. The 50% figure is used as a threshold to
identify the point at which PECO's market share threatens the health ofthe competitive
4 9The Better Choice Plan is described in Environmentalists' Statement No. 2-S (Bruce Biewald), pp. 10-32.
5 0The Environmentalists support the Partial Settlement's accelerated enrollment schedule. If that new schedule is supported by the Commission, the number of enrollment periods would change, but all other aspects of the Better Choice Plan would remain the same.
5 1 Because of the competitive advantage Horizon Energy and EnergyOne have over other competitors due to their affiliation with PECO, the Environmentalists suggest that for purposes of the market share determination, their customers be considered PECO customers and they not be eligible to participate in the default supplier pool. The Biewald testimony lists several conditions which would allow these PECO affiliates to be treated like the other generation suppliers. Environmentalists' Statement No. 2-E (Bruce Biewald), p. 16,1. 11 to p. 17, i. 17.
Brief of the Environmentalists Page 26
market. If that share is less than 50%, then the remedy ofthe Better Choice Plan is
unneeded. If the PECO share is 50% or more, then the Better Choice Plan's allocation
mechanism would be triggered.
When the PECO share is 50% or more, the Better Choice Plan would allocate all
default customers to be served by the non-PECO generation suppliers who have
volunteered and qualified to be part ofthe default supplier group. The default customers
would be allocated on a random basis between the suppliers in the default supplier group
in proportion to the market share of each member supplier.
The Environmentalists acknowledge that implementation ofthe Better Choice Plan
is possible only after additional work to address some ofthe unresolved issues, but we
urge the Commission to include it in the final Order to prevent the serious threat of market
domination by the monopoly provider which would be fatal to the emergence of a
competitive market.
V. Universal Service
A. Introduction
As noted in the Act, electricity has become a necessity of life.52 But for many of
PECO's low-income customers, it is a necessity they cannot afford. Roger Colton testified
for the Environmentalists that the average Philadelphia household eligible for universal
service programs spends, on a percentage-of-income basis, 5.9 times as much for
52 66 PA.C.S. §2802(9).
D 1 I 1 I I
Brief of the Environmentalists Page 27
electricity as the average PECO customer.53 The Partial Settlement took a large step in
the right direction to address these issues and the Environmentalists commend Senator
Fumo, CEPA and the other members of their coalition for bringing these issues to the
forefront in the settlement negotiations.
B. The Expansion of Universal Service
The Partial Settlement expands PECO's universal service programs to include up
to 100,000 customers and provides for an
annual budget of up to $50 million. The
Environmentalists strongly support this
expansion, though we do not believe it
goes far enough. Roger Colton testified
that full enrollment would mean 130,000
The Need for Universal Services in the PECO Service Territory
130,000 potential customers
CAP / CAP Rate $59.25 million/yr. LIURP $ 8.34 million/yr. CARES/MEAF/LIHEAP $ 0.96 million/yr.
TOTAL $68.55 million/yr.
participants and the total expenditures of $69 million a year.54
C. LIURP
The Low-Income Usage Reduction Program is a cost-effective means of reducing
the energy costs of low income households so that the electric bill is affordable. The
Partial Settlement caps the annual LIURP budget at $4 million (out of a total universal
service budget of $50 million). The Environmentalists object that only 8% ofthe budget
5 310.6% of their income versus 1.8% of their income. Environmentalists'Statement No. 1 (Roger Colton), p. 20,1.14-16.
^Environmentalists' Statement No. 1 (Roger Colton), Ex. RDC-7,p. 1-2.
Brief ofthe Environmentalists Page 28
goes to energy conservation, while the remaining 92% goes to subsidize consumption and
other administrative costs. The LIURP budget should be increased to $8 million a year,
especially in light of its added value as a stranded cost mitigation strategy.55
PECO's LIURP program is also in need of some fresh thinking regarding eligible
measures. For example, energy-efficient refrigerators were proven to be a very cost-
effective strategy in a recent PECO pilot, but they have not become an eligible measure
under LIURP.
D. CAP Rate
The Environmentalists support the expanded CAP Rate program proposed in the
Partial Settlement. Reducing the cost of electricity is an important tool for making the
electric bill affordable, but high consumption customers need additional services to help
them reduce their consumption to the subsidized levels.
The increase in customer terminations by PECO raises questions about the
effectiveness of CAP Rate the CAP program. The evaluation ofthe CAP Rate program
should be shared with the Commission and others and carefully evaluated before PECO is
allowed to abandon the CAP program design and replace it with CAP Rate.
The CAP Rate program must be effectively linked to energy education, energy
conservation and other services. The Environmentalists recommend that the CAP Rate
program be modified so that all customers consuming more than 110% ofthe subsidized
levels are referred to the other universal service programs and receive these other
55 See the discussion of conservation as a mitigation strategy, pp. 10-11.
Brief of the Environmentalists Page 29
services. We wholeheartedly support the Partial Settlement's conclusion that prepaid
meters are inappropriate for low income households and should not be used for that
customer group.
E. Renewable Energy Pilot
The one explicit reference in the Act to renewable energy is found in the definition
ofthe phrase "universal service and energy conservation."56 The universal service
program proposed by PECO ignores renewable energy altogether. The Environmentalists
urge the Commission to direct PECO to develop and offer a renewable energy pilot
program as a component of its universal service program. This pilot could offer renewable
technologies such as solar domestic water heating, solar photovoltaics, wood-fired water
and/or space heating, etc.
F. Consumer Protection
The Act recognizes Chapter 56 as a most important consumer protection and it
requires that customer services ("including meter reading, complaint resolution and
collections") be "maintained at the same level of quality"57 The Partial Settlement commits
the Joint Petitioners to "thoroughly review and, as appropriate, to recommend changes" to
Chapter 56 and other Commission regulations and procedures.58 While the
^66 Pa.C.S. §2803, definition of "Universal service and energy conservation."
5 766 Pa.C.S. §2807(d).
^Joint Petition for Partial Settlement, ^28, pp. 23-24.
Brief of the Environmentalists Page 30
Environmentalists recognize that some revision ofthe regulations may be appropriate
given the scope ofthe restructuring changes, we urge caution in this effort. Restructuring
cannot become the excuse to gut the protections of Chapter 56.
G. Allocation of Universal Service Costs
The cost of providing universal service is recognized as a "public service cost" in
the Act.5 9 As a public service cost, all sectors ofthe public should bear the costs, but this
is not the case under the Partial Settlement. Environmentalists' witness Roger Colton
presented a compelling argument that universal service is the compensation for the
valuable public perquisites of eminent domain and the right to use public streets. These
rights are of tremendous value to PECO and to all who receive service from PECO, for
without them, all ratepayers would bear higher costs. As Mr. Colton testified, "[t]he
commitment to universal service is simply the compensation to the public for having
provided these public benefits."60
Under the Partial Settlement, the $50 million cost ofthe programs will be borne only
by residential ratepayers as a component of their T&D costs.61 This should be contrasted
with the various economic development tariffs for "payment-troubled" industrials. These
programs are included in the rates for all customers.
5966 Pa.C.S. §2802(17).
^Environmentalists' Statement No. 1 (Roger Colton), p. 29,1. 18 to p. 33,1. 27.
6 1 Joint Petition for Partial Settlement, U 25, p. 22.
I I I I
Brief of the Environmentalists Page 31
The Commission should amend the cost recovery provisions ofthe universal
service programs to include those costs in the rates of all ratepayers.
H. Public Input
The Partial Settlement provides for two separate opportunities for public input. The
Joint Petitioners will be able to review and comment on recommendations for changes to
the CAP Rate program.62 The second opportunity is in a newly-created LIURP Advisory
Committee to review PECO's LIURP program design and delivery.63
The Environmentalists support the concept of public input, however we believe this
input would be more meaningful if the Commission directed PECO to establish a single
Universal Service Advisory Committee which would be charged with reviewing all
universal service programs. Committee membership should be defined to ensure it is
inclusive and balanced. The committee should meet as needed, but at least twice a year.
Its meetings should be transcribed. The committee should present its recommendations
in writing to PECO and the company should be required to respond in writing to the
committee's recommendations. Lastly, the Partial Settlement's prohibition on LIURP
service delivery contracts with any committee member's organization64 should be
removed. PECO should want qualified people both on its advisory committee and
delivering its program services, but the Partial Settlement requires individuals to choose
62Joint Petition for Partial Settlement, 1|22, p. 21.
"Joint Petition for Partial Settlement, U27, p. 23.
^Joint Petition for Partial Settlement, U27, p. 23.
Brief of the Environmentalists Page 32
one or the other. Because the committee is only advisory, no conflict of interest will exist
and any appearance of a conflict can be avoided by full disclosure and openness.
I. Administration
The Environmentalists recommend that PECO contract out both the delivery and
administration ofthe universal service programs. The Partial Settlement provides that
PECO will contract with community-based groups to be direct providers for LIURP, but all
other universal service programs will be delivered by PECO and PECO will continue as
the administrator of all ofthe programs. The Environmentalists urge the Commission to
restructure PECO's universal service program and to unbundle the administration ofthe
program by requiring it to be contracted out to a qualified community-based organization.
Roger Colton described the ideal candidate as "an experienced non-profit, community-
based organization with both a strong track record in the provision of energy assistance,
conservation and education programs, and the ability to leverage significant amounts of
additional public and private resources to help resolve the energy problems of PECO's
low-income customers."65
VI. Distributed Energy
A. Introduction
The Act appears to envision an energy future which is very similar to today's world,
in which the generation of electricity is dominated by large central-generating stations.
"Environmentalists' Statement No. 1 (Roger Colton), p. 38,1. 18-23.
0 0 D g
Brief of the Environmentalists Page 33
The Environmentalists have advanced a different view that our generation future will be
marked by more decentralized, distributed systems. The challenge facing us is to design
a marketplace which can accommodate not only the large central plants, but also the
energy future of small turbines, roof-shingle photovoltaics and dishwasher-size fuel cells.
We need marketplace rules which allow these new distributed energy sources.
B. Net Metering
PECO currently has a net metering tariff known as Rate R-S. While there are some
limitations to the existing rate, PECO should be recognized as a Pennsylvania leader in
this field. The Partial Settlement expanded Rate R-S to include all customer classes and
to include renewable energy technologies beyond solar photovoltaics.
The Environmentalists advocate several additional changes.66 First, the expansion
of Rate R-S must be clarified. The Partial Settlement states "all" customers, but the
revised tariff sheets do not make this change. Second, fuel cells should be an eligible
technology under Rate R-S since they are a very clean technology. Third, the cap of
5,000 customers should be removed. There is no cap with the existing Rate R-S and
there should be none in the new Rate R-S. Fourth, the net metering provisions should be
clarified to specify retail-in/retail-out up to net each month. Fifth, customers should be
able to carry forward a generation credit (at the retail-out rate) for up to 12 months. And
sixth, the net metering provisions must address what happens when the customer is
purchasing power from an alternate supplier.
^Environmentalists' Statement No. 1-E (David Schoengold), p. 12 and Exhibit DS-4.
Brief of the Environmentalists Page 34
C. Interconnection
A net metering tariff is critical, but distributed energy projects which face endless
interconnection obstructions and high fees will never succeed. To remove unnecessary
barriers to interconnection, the Environmentalists recommend several changes to the
connection provisions ofthe tariff. First, the technical standards should be simplified and
made consistent with IEEE, UL and other national standards. Second, for photovoltaic
and other simple systems, the engineering review should be replaced with an inspection
designed to confirm that the systems meet IEEE and UL standards and the cost of this
review should be capped at $35. The interconnection review fee for other installations
should be capped at $250. Third, the tariff should allow a customer three metering
options at the customer's choice: a non-ratcheted bidirectional meter; two meters; or a
smart meter. There should be no additional meter-reading fee.
VII. Consumer Information and Education
A. Introduction
Consumer information and education were important components ofthe Act.
Recognizing that consumers need an educational foundation for the purchasing and other
market decisions they will soon be called upon to make, the Act requires that:
[pjrior to the implementation of any restructuring plan under section 2806 (relating to implementation, pilot program and performance-based rates), each electric distribution company, in conjunction with the commission, shall implement a consumer education program informing customers ofthe changes in the electric utility industry. The program shall
1 I g i i i
Brief of the Environmentalists Page 35
provide consumers with information necessary to help them make appropriate choices as to their electric service.67
In addition to the education program responsibility, the Act made the Commission
responsible for ensuring that consumers have quality information to help them make
sound decisions in the new marketplace. The Commission was directed to promulgate
regulations:
I ... to require each electric distribution company, electricity supplier, marketer, aggregator and broker to provide adequate
Iand accurate customer information to enable customers to make informed choices regarding the purchase of all electricity services offered by that provider. Information shall be provided to consumers in an understandable format that enables consumers to compare prices and services on a uniform basis.68
The importance of educated consumers and access to objective, understandable
information was certainly reinforced by the recent experience with the retail access pilot
programs. One need look no further than the barrage of confusing and empty
advertisements which have been flooding over us in
the pilot programs to see that the Act was correct.
An active Commission role is appropriate and
necessary. Consumers are clamoring for accurate information in an uniform and
understandable format. Without it, many of those who volunteered for the pilot programs
Joe Izuzu may make us smile, but he fails to give us the information we need to make sound energy decisions.
6 766 Pa.C.S. §2807(d)(3).
^66 PaC.S. §2807{d)(2)
Brief of the Environmentalists Page 36
are giving up and dropping out. There should be no lingering doubts that the Commission
must implement a state-wide consumer education program.69
B. Consumer Education
As part of its restructuring filing, PECO submitted its plan for an education program
and the Environmentalists responded in testimony of Roger Colton.70 A revised consumer
education program was included in the Partial Settlement71 and the Environmentalists
support this section of the Partial Settlement.
The Joint Petitioners agreed that a state-wide Consumer Education Program
should be implemented by the Commission and supplemented by individual utility efforts.
Appendix G ofthe Partial Settlement outlined the steps needed to implement that
program. The Environmentalists particularly support the Partial Settlement's discussion of
the education program content:
(1) to educate consumers about restructuring generally and the advent of consumer choice;
(2) to educate consumers about the decisions they will be called to make;
(3) to educate consumers about how to evaluate their electricity consumption and the potential to reduce this consumption through energy conservation and energy efficiency strategies; and,
6 9The Commission has opened several generic dockets to address the education and information issues and the Environmentalists have participated (and will continue to participate) in those proceedings.
^Environmentalists' Statement No. 1 (Roger Colton). See particularly pages 4-19 and Exhibit RDC-3 (Summary of Consumer Education Recommendations). See also OCA Statements No. 5 and 5-SE (Barbara Alexander), Enron (EPMI) Statement 5 (Raymond Bowen, Jr.) and AARP Statement 1 (Mark Cooper).
"Joint Petition for Partial Settlement, 29-32, pp. 24-25 and Appendix G.
I I I 1 1 I
Brief ofthe Environmentalists Page 37
(4) to educate consumers about the production of electricity, the various technologies used to produce electricity, and the environmental consequences of this production.72
C. Consumer Information
The one addition to the consumer information aspects of this proceeding which the
Environmentalists wish the Commission to make involves the need for environmental
| disclosure. Environmentalists' witness Bruce Biewald testified about the value to
consumers of knowing both the fuel mix and the emissions/wastes produced by the power
they are considering to purchase.73 As discussed in the Regulatory Assistance Project
report which was an exhibit to the Biewald testimony, much good work is taking place
around the country on this issue. Whether in the restructuring Order or the generic
proceeding, emission and waste information should be added to the consumer information
requirements.
VIII. Transmission and Distribution Planning
A. Introduction
Much ofthe attention in this proceeding has focused on the generation component
ofthe electric utility industry, but both the transmission and the distribution segments of
the industry will be undergoing major changes as well.
72Joint Petition for Partial Settlement, Appendix G, Step 5.
"Environmentalists' Statement No. 3 (Bruce Biewald), pp. 9-17 and Exhibit BEB-3 (the Regulatory Assistance Project's March 1997 report Full Environmental Disclosure for Electricity: Tracking and Reporting Key Information).
Brief of the Environmentalists Page 38
B. The Need for Life-Cycle Cost Analysis of Alternatives to Line Upgrades
The Environmentalists submit that as load grows, Pennsylvania's Electric
Distribution Companies ("EDC") will come under increasing pressure to upgrade
transmission and distribution lines. However, before an EDC invests ratepayer money in
such actions, it should first evaluate the life-cycle costs of a number of alternatives,
including energy conservation and efficiency, load management and distributed energy
generation.74 While integrated resource planning may have lost some applicability for
generation decisions in the restructured market, it remains an important tool in the
regulated world of transmission and distribution. Targeted area planning is good practice.
The Partial Settlement addresses an "annual distribution planning process which
evaluates cost-effective alternatives to distribution improvements.75 The
Environmentalists contend that this directive should be strengthened to require public
involvement and review, with public access to planning documents and supporting
materials.
IX. Nuclear Decommissioning
A. Introduction
The manner in which the Commonwealth authorizes the decommissioning and
decontamination of its nuclear power plants may be one ofthe most significant legacies of
the Act. It is essential that adequate funding be available for this task to minimize the
"Environmentalists' Statement No. 1-S (David Schoengold), pp. 17-19.
"Partial Settlement, 38, p. 28.
Brief of the Environmentalists Page 39
possibility of radioactive exposure to our future generations. Nevertheless, the cost of
undertaking such a task is massive and difficult to predict. Any mechanism to provide
funding for decommissioning must be both efficient and equitable and nuclear plant
operators should be responsible for some portion ofthe decommissioning costs so as to
have a motive to control these costs.
The Partial Settlement includes an extensive section on nuclear
decommissioning.76 The Environmentalists support these provisions, provided the
following issues are addressed.
B. Nuclear Decommissioning is Not a Stranded Cost
The Partial Settlement has $234 million of stranded cost recovery earmarked for
nuclear decommissioning. Before the Commission awards any stranded cost recovery for
decommissioning, we recommend that PECO be required to develop and demonstrate a
plan to mitigate nuclear stranded costs. As part of this plan, PECO must accept partial
Company funding of decommissioning deficiencies as an incentive to manage costs.
C. The Need for an External Fund
The possibility of early retirement of PECO's nuclear stations must be taken into
consideration in the design of decommissioning funding plans. Widespread discussion
has occurred debating the effect that electric restructuring and competition will have on
nuclear power plants. Environmentalists' witness Bruce Biewald suggests at least two of
76Joint Petition for Partial Settlement, 20, pp. 17-19.
Brief of the Environmentalists Page 40
PECO's units may not be able to compete.77 The financial difficulty that the company
could then experience from a retiring plant's loss of income is a persuasive reason for the
maintenance of an external fund for decommissioning. It prevents the mis-allocation of
the funding for other purposes.78 Restrictions should be placed upon the use ofthe
decommissioning funds and Commission jurisdiction should be preserved.
D. Cost-Benefit Analysis of Early Retirement
Any proposed increases in customer payments should trigger a cost-benefit
analysis justifying the cost increase, in the event that PECO requests an increase in
decommissioning funding, it must demonstrate that the increase is consistent with an
overall economic plan for the unit. For example, if the Company plans to continue
operating the unit for which the funding increase is requested, then it should present a
cost-benefit analysis that shows that continued operation, with the increased
decommissioning funding levels, is the economic course of action.
E. Spent Nuclear Fuel
The treatment of spent nuclear fuel should be clarified and adjusted.
Not unlike the removal and disposal of ash from coal-fired units, the handling, storage and
disposal of spent fuel rods at nuclear generating stations are a part of ongoing operations
and maintenance and should be treated as such by the Commission. Indeed, PECO has
"Environmentalists' Statement No. 3 (Bruce Biewald), p. 32,1.1-9.
"Environmentalists' Statement No. 3 (Bruce Biewald), p. 32,1. 12-26.
Brief of the Environmentalists Page 41
included the Department of Energy's 1 mil/kWh charge for nuclear waste disposal
programs in its projection of fuel costs and the market value of its nuclear assets.79
Despite treating this charge as an O&M expense, PECO now proposes to pay for this dry
case storage through decommissioning funding.80 PECO should not be allowed to have it
both ways. Since PECO has chosen to view the disposal of spent fuel as an operation
and maintenance cost, a characterization with which we concur, it should not be given an
opportunity to transfer the funding of disposal out to a wires charge.
X. Sustainable Development Fund
A. Introduction
The final issue in this brief, but one the Environmentalists have been advancing
since the PECO securitization proceeding, is our proposal to the Commission for a
Sustainable Development Fund to finance and promote energy conservation and
efficiency, renewable energy and other clean energy technologies. While a large part of
the restructuring proceeding is looking backwards and charging ratepayers billions of
dollars for past mistakes, we should also be looking forward and making a modest
investment in Pennsylvania's sustainable energy future.
7 9PECO Statement 1 (Thomas Hill),, p. 10 and Exhibit TPH-2.
8 0PECO Statement No. 8 (Thomas LaGuardia), Exhibit TLG-1, Section 4, page 19; Exhibit TLG-2, Section 4, pages 15-16; Exhibit TLG-3, Section 4, page 14.
Brief of the Environmentalists Page 42
B. The Mission and Structure ofthe Sustainable Development Fund
In addressing the mission forthe
Sustainable Development Fund,
Environmentalists' witness David
Schoengold submitted the Long Island
Power Authority's draft policy statement on
its Clean Energy Fund.81 Some of the
highlights of that mission statement are
extracted in the box to the right.
C. The Budget of the Sustainable Development Fund
The Mission of the Sustainable Development Fund
to support energy efficiency, clean distributed generation and renewable technologies
to support economic development projects which promote clean energy
to support cost-effective clean energy alternatives to distribution system upgrades
to develop reasonable interconnection standards
to review and publicize power plant emission and waste data
to encourage clean energy supplies in the generation mix offered to Pennsylvania customers
to encourage energy efficiency and renewable energy resource technologies to locate in Pennsylvania
The Environmentalists propose that
the Sustainable Development Fund be financed by all suppliers through an annual
contribution equal to 0.5% of their operating revenues. As PECO witness Hill noted, this
contribution rate would, on a statewide basis, generate a ten-year total of $220 million.82
While he intended this number to appear overly large, in fact it is quite modest compared
to the investment other states are making in energy conservation and clean energy
technologies. The Long Island Power Authority's Clean Energy Fund will have an annual
budget of $32 million, more than Mr. Hill's annual figure for all of Pennsylvania.
^Environmentalists' Statement No. 1-E (David Schoengold), Exhibit DS-5.
8 2PECO Statement No. 1-ER (Thomas P. Hill, Jr.), p. 6,1. 3-4.
Brief of the Environmentalists Page 43
XI. Conclusion
Tomorrow (December 3rd) is the first anniversary of the Act. Since it was passed,
everyone knew that many ofthe monumental decisions would fall on the Commission.
The Environmentalists have shared, as best we can, our vision for the job ahead. It is
now the Commission's task to create the marketplace where the residents and the
businesses of Pennsylvania have access to adequate, safe, clean, reliable and efficient
energy services at fair and reasonable prices at the lowest long-term cost to society.
Respectfully submitted,
Attorneys for the Environmentalists by;
Date: December 2, 1997
Roger E. Clark, Esq. 905 Denston Drive Ambler, PA 19002-3901 phone: 215-643-2364 fax: 215-628-2630 e-mail:
[email protected] (Sup. Ct. No. 24852)
Alan J. Barak, Esq. 1417 Blue Mountain Pkwy Harrisburg, PA 17112
phone: (717) 540-5106 fax: (717) 541-1970 e-mail:
[email protected] (Sup. Ct. No. 67886)
Of Counsel:
Kathleen F. O'Reilly, Esq. 414 A Street, S.E. Washington, D.C. 20003 phone: 202-543-5068 fax: 202-547-5784 e-mail:
D:\WPdocs\Restnjctufing\P£CO cases\Briaf of the Envir Dec 2.wpd
BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION
APPLICATION OF PECO ENERGY COMPANY FOR APPROVAL OF ITS RESTRUCTURING PLAN
PETITION OF ENRON ENERGY SERVICES POWER, INC. FOR APPROVAL OF AN ELECTRIC COMPETITION AND CUSTOMER CHOICE PLAN
DOCKET NO. R-00973953
DOCKET NO. P-00971265 (consolidated)
APPENDIX A
The Environmentalists' Proposed Findings of Fact
Alan J. Barak, Esq. 1417 Blue Mountain Parkway
Harrisburg, PA 17112 phone: (717)540-5106
fax: (717)541-1970 e-mail: [email protected]
Table of Contents
General consideration 1
CTC considerations 1 Quantifying Stranded Costs 2 Stranded Generating Assets 2 The Environmentalists' Recommendation for Quantifying Stranded Generating Assets 3 Mitigating Stranded Costs 3 Sharing the Burden of Stranded Costs 4 Other Stranded Costs 4 Total Stranded Costs 5
Recovering Stranded Costs 5 The recovery period no longer than necessary 5 The recovery reconcilable by class 6 The recovery level over the recovery period 7
Unbundling the Rates 7
The CTC / ITC Charge 7
The Generation Credit 8
Summary of The Environmentalists' Unbundled Rates 9
Better Choice Plan: Preventing Market Domination 9 The Default Customer - The Failure to Choose 11 The Default Supplier Group 11 Allocating Default Customers 12
Universal Service 12 The Expansion of Universal Service 13 LIURP 13 CAP Rate 13 Renewable Energy Pilot 14 Chapter 56 Consumer Protection 14 Allocation of Universal Service Costs 14 Public Input 15 Administration 15 Distributed Energy 16 Net Metering 16 Interconnection 16
Consumer Information and Education 17 Consumer Education 17 Consumer Information 17
Transmission and Distribution Planning 18
Nuclear Decommissioning 18
Sustainable Development Fund 20
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 2
General consideration
1. Consumers should have access to adequate, safe, clean, reliable and efficient energy services at fair and reasonable prices at the lowest long-term cost to society.1
CTC considerations
2. The opportunity for recovery of a substantial amount of stranded costs should be expressly conditioned on full utility cooperation in achieving the best result for customers and the environment in the years ahead.2
3. A higher stranded cost award means a higher Competitive Transition Charge and/or a higher Intangible Transition Charge ("CTC" and "ITC") in the unbundled rates.
4. Because of the rate cap,3 a higher CTC/ITC means a lower generation credit, which means that less ofthe bill is subject to competition and customers have
5.
less opportunity to obtain savings from alternate suppliers.4
A higher CTC means that alternate suppliers have a tougher time entering and staying in the market and robust competition fails to develop and the promise of the Act is unfulfilled.5
6. The absence of competition will slow down the introduction of new, clean generating options (both fossil-fueled options and renewable resource options).
7. A high stranded cost recovery will indirectly subsidize existing generation, including older inefficient, polluting units.6
1Exhibit DS-2 of Environmentalists' Statement 1-S (David Schoengold).
2CEPA etal. Statement No. (Peter Bradford), p. 13,1. 5-9.
366 Pa.C.S. §2804(4).
"NEV Statement No. 1 (David Boonin), p. 13,1. 28 to p. 14,1. 10 and NEV Statement No. 1-SR (David Boonin), p. 1,1. 28 to p. 2,1. 7.
5NEV Statement No. 1 (David Boonin), p. 13,1. 28 to p. 14,1.10 and NEV Statement No. 1-SR (David Boonin), p. 1,1. 28 to p. 2,1. 7.
Environmentalists' Statement 1-S (David Schoengold), p. 4,1. 15-22.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 3
8. The emissions of existing generating units will make it more difficult in Pennsylvania to maintain air quality at levels sufficient to protect human health and property.7
9. This in turn may "impose restrictions on economic development, constraining the siting of manufacturing operations or competitive power producers.8
Quantifying Stranded Costs
10. The Joint Settlement and the Choice Plan include several different categories of stranded costs, including stranded generating assets, stranded regulatory assets, nuclear decommissioning, fossil fuel decommissioning and other transition costs.
Stranded Generating Assets
11. Approximately 60% of PECO's total stranded cost claim is its calculation of $4,484 billion of stranded generating assets. In the Partial Settlement, the stranded generating asset claim of $4,484 billion is the difference between a regulated value of $6,787 billion minus a market value of $2,303 billion.9
12. Between January and August of this year, PECO has presented four quite different estimates ofthe market value of its generating assets: initially $2,568 billion;10 by early March $2,948 billion;11 in April, 1997 $2,863 billion;12 and in August, 1997, $2,303 billion.13
13. The Partial Settlement's stranded generating asset figure is unreliable.
Environmentalists' Statement 1-S {David Schoengold), p. 5,1. 14-17.
Environmentalists' Statement 1-S (David Schoengold), p. 5,1. 14-17.
9Joint Petition for Partial Settlement, 18, p. 17. See also PECO Statement No. 1 (Thomas Hill), pp. 9-16.
10Application of PECO Energy Company for Issuance of a Qualified Rate Order, Docket No. R-00973877, Statement No. 1 (Thomas Hill), p. 11,1. 12.
^Application of PECO Energy Company for Issuance of a Qualified Rate Order, Docket No. R-00973877, Statement No. 1-R (Thomas Hill), p. 12,1.12-13.
12PECO Statement No. 1 (Thomas Hill), p. 14,1. 8.
13Joint Petition for Partial Settlement, H 18, p. 17.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 4
14. The Partial Settlement's stranded generating asset figure is unreliable because PECO's methodology for quantifying its stranded costs is inadequate due to its high sensitivity to input parameters and lack of a correction or reconciliation..14
The Environmentalists' Recommendation for Quantifying Stranded Generating Assets
15. The Environmentalists' approach to deal with the inherent uncertainty in the quantification ofthe stranded generating assets is a tracking account mechanism which would allow the generating asset value to vary with changes in electricity market prices, subject to adjustment each year at the Commission's annual review of CTC collections under 66 Pa.C.S. §2808(f).15
16. The Environmentalists' approach was also proposed and recommended by New Energy Ventures.16
Mitigating Stranded Costs
17. One proven mitigation strategy is demand-side management.17
18. Energy conservation and load management mitigate stranded costs because they reduce the retail allocation of PECO's stranded generating assets by reducing net retail peak load and freeing up capacity and energy for wholesale transactions.18
19. A program of cost-effective DSM could mitigate retail stranded asset costs by as much as $1 billion.19
'"Environmentalists' Statement No. 1-S {David Schoengold), p. 21,1. 5-14.
^Environmentalists' Statement No. 1-S (David Schoengold), p. 26,1. 15-22.
1 6NEV Statement No. 1 (David Boonin), Ex. DMB-4.
^Environmentalists' Statement No. 1-S (David Schoengold), p. 31,1. 24-25.
^Environmentalists' Statement No. 1-S (David Schoengold), p. 31,1. 24-25.
^Environmentalists' Statement No. 1-S (David Schoengold), p. 31,1. 24-25.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 5
20. Doubling the Low-Income Usage Reduction Program budget from $4 million a year to $8 million a year would materially help mitigate PECO's stranded costs.20
21. PECO has cut back on its demand side management program scope.
Sharing the Burden of Stranded Costs
22. It would be unfair for the customers to have to bear the full responsibility for PECO's stranded investment loss and forthe stockholders to receive a full return on their investment as well as return of their investment.21
23. A stranded generating asset recovery of $1,152 billion would allow PECO to pay ofthe debt holders and to provide the stockholders with a return of and an 8.1% return on their investment.
24. With respect to PECO's claimed stranded assets, stockholders made an initial investment of $5,952 billion in the generating assets and have been allowed a total recovery of $7,818 billion, or 149% ofthe original investment and an internal rate of return of their investment to date of 8.1 %.
25. A level of stranded generating asset cost recovery which would be necessary to pay off the debt holders and to provide the stockholders with a return of their investment and an 8.1% return on their investment would be $1,152 billion.
26. A recovery of $1.52 billion is 25.7% ofthe Partial Settlement's generating asset stranded claim of $4,484 billion.
27. An 8.1% return on a bad investment would be quite reasonable.
Other Stranded Costs
28. The most reasonable recovery of regulatory assets would be at a value of $1.657 billion.22
^Environmentalists' Statement No. 1-S (David Schoengold), p. 34,1. 11-18.
^Environmentalists' Statement No. 1-E (David Schoengold), p. 40,1.4-14.
22OCA Statement 1-S (Richard Capra), Ex. RLC-2, p. 2 (Revised).
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 6
29. The most reasonable recovery of nuclear decommissioning costs would be zero.23
30. The most reasonable recovery of fossil decommissioning costs would be zero.24
31. The most reasonable recovery of other transition costs would be zero.25
Total Stranded Costs
32. PECO's stranded cost recovery must be jurisdictionalized, using a factor of 96.2%.26
33. The total PECO stranded cost recovery would not be reasonable, or in the public interest, if in excess of $2,732 billion.
Recovering Stranded Costs
The recovery period no longer than necessary
34. Both the Partial Settlement and the Choice Plan extend the recovery to 10 years.
35. Delaying some ofthe rate cut by extending the CTC recovery to 10 years increases the total costs to ratepayers.
36. The CTC/ITC charge distorts customer price signals for the competitive retail market as long as it is in effect.
37. It is more reasonable to finish up the stranded cost collection sooner rather than later.27
2 3OCA Statement 1-S {Richard Capra), Ex. RLC-2, p. 1 (Revised).
"OCA Statement 1-S (Richard Capra), Ex. RLC-2, p. 1 (Revised).
2 5OCA Statement 1-S (Richard Capra), Ex. RLC-2, p. 1 (Revised).
26Jurisdictional fraction from Environmentalists' Statement 1-S (David Schoengold), Exhibit DS-7, Schedule 1.
"Environmentalists' Statement No.1-E (David Schoengold), p. 12,1. 6-7.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 7
The recovery reconcilable by class
38. Because the CTC and the ITC are charges added to each kilowatthour, the total recovery of each is directly dependent on the number of kilowatthours sold throughout the collection period.
39. Given the amounts involved in CTC/ITC recovery, even a very small discrepancy between projected sales and actual sales will result in a large difference in collections.
40. The Partial Settlement, in computing its CTC/ITC charges, assumes that future load growth will be zero.
41. The Partial Settlement's assumption of zero PECO load growth over the CTC/ITC collection period is unreasonable.
42. The effect of assuming zero load growth for the CTC/ITC period of the Partial Settlement, given the lack of reconciliation, is extremely great — e.g., if load instead grows at 1%, the CTC/ITC collections will be 7% greater than approved.28
43. It would be unreasonable, and unfair to customers, to fail to provide for reconciliation of annual CTC/ITC collections.
44. In designing the reconciliation mechanism, it is critical to prevent cost shifting between customer classes.
45. It is most reasonable to set CTC/ITC recovery for each class and reconcile the resulting collections on a class basis.29
46. Reconciling on a system basis, rather than on a class basis, would shift responsibility for CTC/ITC collections among the classes.
47. The classes will likely experience different growth rates.
48. It is reasonable to reconcile on a class basis because PECO's customer loads have been growing at different rates for the major classes - residential and
^Environmentalists' Statement 1-S (David Schoengold), p. 11,1. 16-22. The 7% figure is the increase in the CTC recovery totals shown on the table between 0% growth and 1% growth.
29See, e.g., OCA Statement No. 4 (Lee Smith), p. 11-12.
I I 1
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 8
commercial classes have experienced load growth, but the industrial class has seen a drop in number of customers, peak load and energy consumption.30
49. With class-based reconciliation and with the trend of differential load growth rates continuing, all other things being equal, it will be reasonable for the reconciliations to reduce or shorten residential CTC/ITC, to reflect the faster recovery, and increase or lengthen the industrial CTC/ITC charge, to make up for the under-recovery.
The recovery level over the recovery period
50. Straight amortization of stranded costs31 would be reasonable.
51. The Partial Settlement and the Choice Plan proposals provide for an unreasonable, unbalanced recovery ofthe CTC/ITC charges over the recovery period.
52. It would be reasonable for reconciliation to be structured to recover the authorized stranded costs in equal annual amounts because, ofthe alternatives proposed, it will most closely resemble the market, where prices fluctuate because of natural market conditions but not because of engineered rates.
Unbundling the Rates
53. It is reasonable to unbundle rates in order to tell customers what part and how much of their bill they can take shopping for alternative suppliers and what part and how much will continue to be tied to the monopoly utility.
The CTC / ITC Charge
54. The parties took different approaches to the annual level ofthe CTC/ITC kilowatt-hour charge:
^PECO 1997 Annual Resource Planning Report, in the record as Conectiv Cross-Examination Exhibit 2).
3 166 Pa.C.S. §2808(f).
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 9
a. The Partial Settlement begins with a high CTC/ITC which, after a slight rise, decreases throughout the collection period. Partial Settlement, Table A, p. 8.
b. Enron's Choice Plan starts with a low CTC/ITC which increases. Enron (EESPI) Statement 1-R (Steven Kean), Attachment A.
c. The Environmentalists recommend that the CTC/ITC recovery be equal throughout the collection period, and, because ofthe assumption of a slight load growth, they recommend that the kilowatt-hour CTC/ITC charge decrease slightly. (Environmentalists' 1-E (David Schoengold), Ex. DS-1, Sch. 1.)
d. MAPSA and NEV also provide variable level proposals. (MAPSA Statement 1-S (Donald Johnstone), Schedule A; NEV Statement 1-SR (David Boonin), Exhibit DMB-16)
55. The Environmentalists' levelized proposal is most reasonable.
The Generation Credit
56. The generation credit is a most critical number to both the ratepayers because it is the amount that they can take shopping to find a lower price from another supplier.
57. The generation credit is a most critical number to the alternate suppliers because the degree they can undercut the generation credit will determine to a very large extent their ability to attract customers.
58. The generation credit recommendation ofthe parties differed:
a. The generation credit in the Partial Settlement begins quite low and then rises quite steeply;32
b. The generation credits proposed by Enron and the Environmentalists begin higher than the Partial Settlement, but have a shallower slope;33
32Partial Settlement, Table A, p. 8.
^Enron (EESPI) Statement No. 1-R (Steven Kean), Attachment A; Environmentalists' Statement No. 1-E (David Schoengold), Ex. DS-1, Sch. 1.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 10
c. Other parties' proposals also begin higher than than the Partial Settlement's, and present flatter slopes than the Partial Settlement's;34
59. The Partial Settlement's schedule of proposed generation credits begins at too low a level to facilitate the transition to competition, and must be rejected.
60. The Environmentalists' proposed schedule of generation credits is reasonable, will facilitate an orderly transition to retail competition, and should be adopted.
Summary of The Environmentalists' Unbundled Rates
61. In the Partial Settlement, the unbundled rates are shown in Table A. 3 5
62. The Environmentalists' version of Partial Settlement Table A, shown in their Brief, Table 4, is reasonable, and should be adopted.
Better Choice Plan: Preventing Market Domination
63. A just and reasonable set of unbundled rates is an essential condition to creating a robust competitive market.
64. An adequate generation credit alone is not enough to ensure all customers have meaningful choices of electricity suppliers and services.
65. The restructuring order must address the problem of market domination by PECO by virtue ofthe Company's status as the monopoly supplier in this region forthe last century.
66. A great many of PECO's electricity customers are unlikely to make any choice at all regarding their electricity supplier during the early transition years.36
^MAPSA Statement 1-S (Donald Jonhstone), Schedule A; NEV Statement No. 1-SR (David Boonin), Exhibit DMB-16; PECC Statement No. 1-SR (Steven Mitnick), Ex. SAM-SR2.
35Joint Petition for Partial Settlement, Table A, p. 8.
^Environmentalists' Statement No. 2-E (Bruce Biewald), p. 2,1. 16 to p.3,1. 2.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 11
67. If PECO is designated the default supplier of these non-selecting customers, then it will be granted a significant market share without incurring the marketing and transaction costs that would be required of competitive utilities.37
68. PECO's receiving by default the non-selecting customers would impede the transition to retail competition because it would add to the numerous tangible and intangible competitive advantages that are typically enjoyed by incumbent utilities.38
69. The Environmentalists proposal for a system for allocating non-choosing customers to alternative suppliers serving PECO's service territory, the "Better Choice Plan", reasonably addresses the contingency of large numbers of non-selecting customers, is the best alternative proposed to address the issue, and should be adopted.
70. The Better Choice Plan appropriately relies on the experience in the long distance telephone industry, where the Federal Communications Commission in 1985 sought to end the market domination of AT&T and encourage meaningful competition by setting up a market allocation pool of other carriers to provide, long distance service to customers who failed to select a carrier.39
71. There is an important distinction between the concepts of "provider of last resort" and "default supplier":
a. The provider of last resort is the "entity that is assigned the responsibility of ensuring that all electricity customers will have access to a reliable supply of electricity at reasonable prices, terms and conditions."40
b. The provider of last resort is required to serve customers who, for a variety of reasons, cannot obtain generation services from any alternative supplier.
^Environmentalists' Statement No. 2-E (Bruce Biewald), p. 2,1.16 to p.3,1. 2.
^Environmentalists' Statement No. 2-E (Bruce Biewald), p. 2,1. 16 to p.3,1. 2.
39Enron (EESPI) Statement No. 3 (Douglas Bohi), p. 13-14.
"Environmentalists' Statement No. 2-E (Bruce Biewald), p. 29,1. 3-5.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 12
c. The default supplier is the supplier that serves the default customers, or those customers who have failed to choose an alternative generation supplier.
d. Under the Settlement Proposal, PECO is the default supplier and under the Choice Plan, Enron is the default supplier.
72. Under the Environmentalists' Better Choice Plan, a more diverse market is created because the alternative suppliers active in the market can volunteer to become part ofthe default supplier group which will serve the customers who fail to choose.
73. It is reasonable to designate PECO to be the provider of last resort.41
The Default Customer - The Failure to Choose
74. ft is widely acknowledged that when an industry moves from a regulated monopoly to an open market, many customers stay with the monopoly supplier. 42
75. Considerable consumer research finds that there is no conscious exercise of discretion in the failure of consumers to choose an alternative supplier of service when an industry moves from a regulated monopoly to a competitive model.43
76. A transitional market mechanism such as the Better Choice Plan is an appropriate and helpful response to the temporary customer difficulties in choosing a supplier during the transition to competition.44
The Default Supplier Group
77. The seven supplier conditions for participation in the Better Choice Plan are reasonalbe, given the voluntary nature ofthe plan, will enhance the transition to competition, and should be adopted.
"Environmentalists' Statement No. 2-E (Bruce Biewald), p. 31,1. 3 and Environmentalists Statement 3-E (Roger Colton), p. 5,1. 24-28.
4 2For example, see Enron (EESPI) Statement No. 3 (Douglas Bohi), p. 13-14.
"Environmentalists Statement No, 3-E (Roger Colton), p. 2,1. 8-14.
•"Environmentalists Statement No. 3-E (Roger Colton), p. 6,1. 2-5.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 13
Allocating Default Customers
78. The Better Choice Plan's45 50% test for determining whether to begin the plan's operation is a reasonable threshold test, and should be adopted.
79. The threshold test should be whether a "PECO share", defined just below, amounted to 50% or more — (1) the customers who had made an affirmative selection of PECO, (2) the customers who had made an affirmative selection of one of PECO's affiliated generation suppliers, and (3) the default customers {i.e. those who failed to make any selection at all).
80. It is reasonable when the PECO share, as defined, is 50% or more, to allocate all default customers to be served by the non-PECO generation suppliers who have volunteered and qualified to be part ofthe default supplier group, as the Plan provides.
81. It is reasonable to convene in this docket a supplementary proceeding to address the details ofthe Better Choice Plan.
Universal Service
82. Electricity has become a necessity of life in PECO's service territory.46
83. Many of PECO's low-income customers, it is a necessity they cannot afford the electricity they need.
84. The average Philadelphia household eligible for universal service programs spends, on a percentage of income basis, 5.9 times as much for electricity as the average PECO customer.47
4 5The Better Choice Plan is described in Environmentalists' Statement No. 2-S (Bruce Biewald), pp, 10-32.
4 666 PA.C.S. §2802(9).
'1710.6% of their income versus 1.8% of their income. Environmentalists' Statement No. 1 (Roger Colton), p. 20,1. 14-16.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 14
The Expansion of Universal Service
85. The Partial Settlement's expansion of PECO's universal service programs to include up to 100,000 customers with an annual budget of up to $50 million is on the low end of the scale of reasonableness.
86. It is more reasonable to expand the PECO universal service programs to 130,000 participants and total expenditures of $69 million per year. 4 8
LIURP
87. The Low-Income Usage Reduction Program is a cost-effective means of reducing the energy costs of low income households so that the electric bill is affordable.
88. The Partial Settlement's cap of the annual LIURP budget at $4 million, out of a total universal service budget of $50 million, is unreasonably low, providing for only 8% of the budget going to energy conservation, while the remaining 92% goes to subsidize consumption and other administrative costs.
89. The LIURP budget should be expanded, especially in light of its added value as a stranded cost mitigation strategy.
90. It is reasonable to expand the PECO LIURP program through a supplementary proceeding in this docket, addressing additional eligible measures.
CAP Rate
91. The expanded CAP Rate program proposed in the Partial Settlement is reasonable, and should be adopted, with modification to link it to reducing low income customers' consumption.
92. It is reasonable to require that the CAP Rate program be effectively linked to energy education, energy conservation and other services in order to assist low income customers to reduce their consumption, and such a provision should be adopted, and addressed in a supplementary proceeding of this docket.
^Environmentalists' Statement No. 1 (Roger Colton), Ex. RDC-7,p. 1-2.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 15
93. It is reasonable to modify the CAP Rate program so that all customers consuming more than 110% ofthe subsidized levels are referred to the other universal service programs and receive these other services.
Renewable Energy Pilot
94. The universal service program proposed in the Partial Settlement is unreasonable insofar as it ignores renewable energy, as the latter appears in the definition of "universal service and energy conservation".
95. It is reasonable for PECO to develop and offer a renewable energy pilot program as a component of its universal service program, providing a discernible fraction of its power from renewables, and offering power from renewable technologies, such as wind, solar domestic water heating, solar photovoltaics, wood-fired water and/or space heating, and such a provision should be adopted, and addressed in a supplementary proceeding of this docket.
Chapter 56 Consumer Protection
96. The Partial Settlement is unreasonable to the extent that its commitment to "thoroughly review and, as appropriate, to recommend changes" to Chapter 56 and other Commission regulations and procedures,49 and this provision should be rejected at this time.
Allocation of Universal Service Costs
97. As universal service is a public service cost, it is reasonable for all sectors ofthe public should bear the costs, including all customer classes.
98. To the extent that the Partial Settlement would excuse any class of customers from contributing to universal service costs, such an exclusion is unreasonable and the provision should be rejected.
99. As a matter of public policy universal service is the utility's compensation for the valuable public perquisites of eminent domain and the right to use public streets,
49 Joint Petition for Partial Settlement, 1128, pp. 23-24.
Brief of the Environ me nta fists Appendix A Proposed Findings Findings of Fact Page 16
which are of tremendous value to PECO and to all who receive service from PECO.
100. To the extent that the Partial Settlement would assign the first $30 million of program costs only to residential ratepayers as a component of their T&D costs, the Partial Settlement is unreasonable and the provision should be rejected in favor of a provision that assigns such costs to all customer classes.
Public Input
101. To the extent that the Partial Settlement provides for two separate opportunities for public input, through the Joint Petitioners comments on the CAP Rate program50 and a LIURP Advisory Committee51, proposal is only reasonable in part, and should be modified to set up one entity, with explicit PECO responsibilities to provide requested information on a timely basis, transcriptions of meeting, well-balanced membership, unrestricted by status as LIURP providers, and for coverage of costs by PECO,
Administration
102. It is more reasonable for PECO to contract out both the delivery and administration ofthe universal service programs than to run either operation in-house, and such a modified proposal should be adopted.
103. It is reasonable for PECO to contract with community-based groups to be direct providers for LIURP, and the proposal should be adopted
104. It is most reasonable for PECO to contract for all of its universal service programs with experienced non-profit, community-based organizations with both a strong track record in the provision of energy assistance, conservation and education programs, and the ability to leverage significant amounts of additional public and private resources to help resolve the energy problems of PECO's low-income customers52, and such a requirement should be adopted.
^Joint Petition for Partial Settlement, 1122, P- 21.
5 1 Joint Petition for Partial Settlement, T|27, p. 23.
^Environmentalists' Statement No. 1 (Roger Colton), p. 38,1.18-23.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 17
Distributed Energy
105. It is reasonable to adopt measures that will enhance marketplace rules which allow new, distributed energy sources.
Net Metering
106. PECO currently has a net metering tariff known as Rate R-S, a Pennsylvania leader in this field.
107. It is reasonable to modify the Rate R-S net metering tariff with the following conditions,53 and the rate, as modified, should be adopted:
a. include all customers and customer classes; b. Include renewable energy technologies other than solar photovoltaics; c. the expansion of Rate R-S must be clarified so that the revised tariff
sheets do make the "all customers" and others changes; d. fuel cells shall be an eligible technology; e. the number of customers eligible for the rate shall not be capped, per the
present tariff; f. the net metering provisions shall be clarified to specify retail-in/retail-out
up to net each month; g. customers shall be able to carry forward a generation credit (at the retail-
out rate) for up to 12 months; h. the net metering provisions must address billing and other procedures
when the customer is purchasing power from an alternate supplier to PECO.
Interconnection
108. It is reasonable to remove unnecessary barriers in PECO tariff R-S for distributed power, which changes should be adopted, including:
a. The technical standards should be simplified and made consistent with IEEE, UL and other national standards;
"Environmentalists' Statement No. 1-E (David Schoengold), p. 12 and Exhibit DS-4.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 18
b. For photovoltaic and other simple systems, the engineering review should be replaced with an inspection designed to confirm that the systems meet IEEE and UL standards, at a cost of no more than $35;
c. The interconnection review fee for other installations should be capped at $250;
d. The tariff should allow a customer three metering options at the customer's choice: a non-ratcheted bidirectional meter; two meters; or a smart meter and there should be no additional meter-reading fee.
Consumer Information and Education
109. Consumer information and education are important tools for effecting the transition to retail competition.
110. The pilot programs have demonstrated the inadequacy of electricity competition consumer information to date - confusing and empty advertisements.
Consumer Education
111. The revised consumer education program included in the Partial Settlement54 is reasonable and should be adopted.
Consumer Information
112. It is valuable to consumers to knowing both the fuel mix and the emissions/wastes produced by the power they are considering to purchase.55
113. Good work is taking place around the country before other state commissions on the issue of disclosure of fuel mix and emissions/wastes, and suppliers in the PECO service territory should be required to provide such information in a clear,
"Joint Petition for Partial Settlement, U 29-32, pp. 24-25 and Appendix G.
"Environmentalists' Statement No. 3 (Bruce Biewald), pp. 9-17 and Exhibit BEB-3 (the Regulatory Assistance Project's March 1997 report Full Environmental Disclosure for Electricity: Tracking and Reporting Key Information).
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 19
simple and accurate format, under the consumer information requirements, subject to a supplementary proceeding to be held in this docket.
Transmission and Distribution Planning
114. Both the transmission and the distribution segments of the Company's service territory will be undergoing major changes.
115. PECO, as a T&D company, will come under increasing pressure to upgrade transmission and distribution lines as its load grows.
116. It is not reasonable for PECO, as an electric distribution company, to invests ratepayer money in T&D upgrades or additions without first evaluating the life-cycle costs of a number of alternatives, including energy conservation and efficiency, load management and distributed energy generation.56
117. Integrated resource planning will remain an important tool in the regulated world of transmission and distribution, and targeted area planning is good utility practice.
118. The Partial Settlement's provisions for an "annual distribution planning process which evaluates cost-effective alternatives to distribution improvements",57 must be amended as follows in order to be reasonable, and, as amended, should be adopted:
a. Require public involvement and review; b. Require public access to planning documents; c. Require PECO to provide to participants, on a timely basis, supporting
materials.
Nuclear Decommissioning
119. The manner in which the Commonwealth authorizes the decommissioning and decontamination of its nuclear power plants is critical to the public health and welfare.
^Environmentalists' Statement No. 1-S (David Schoengold), pp. 17-19.
"Partial Settlement, H 38, p. 28.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 20
120. It is essential that adequate funding and prudent management be available for decommissioning the PECO nuclear plants in order to minimize the possibility of radioactive exposure to the future generations.
121. Nuclear decommissioning costs are likely to be massive and difficult to predict.
122. Any mechanism to provide funding for decommissioning must be both efficient and equitable to customers, and nuclear plant operators should be responsible for some portion of the decommissioning costs so as to have an interest in controlling those costs.
123. Without the following amendments, the Partial Settlement's extensive section on nuclear decommissioning58 would be unreasonable. It should be amended as follows, and, as amended, should be adopted:
a. Before the Commission awards any stranded cost recovery for decommissioning, PECO must develop and demonstrate, in a supplemental proceeding of this docket, a plan to mitigate nuclear stranded costs, accepting partial Company funding of decommissioning deficiencies as an incentive to manage costs;
b. The decommissioning fund shall continue to be an external fund;
c. The Company shall provide a process for revisiting decommissioning costs in view ofthe potential for early nuclear plant retirements;59
d. Each proposed increase in customer decommissioning payments through the regulated rates shall trigger a cost-benefit analysis justifying the cost increase, as a material proposition ofthe case, with a requirement for PECO to run a full analysis and file same, including backup, with its request;
^Joint Petition for Partial Settlement, H 20, pp. 17-19.
"Environmentalists' Statement No. 3 (Bruce Biewald}, p. 32,1. 1-9.
Brief of the Environmentalists Appendix A Proposed Findings Findings of Fact Page 21
e. The costs of spent nuclear fuel, including dry cask storage and the DOE 1 mill/kWh waste disposal charge 6 ° 6 1 , shall not be charged in the regulated rates, but shall be absorbed by the generating company as O&M costs;
Sustainable Development Fund
124. It is reasonable for PECO to fund a Sustainable Development Fund, with broad customer interests governing it, to finance and promote energy conservation and efficiency, renewable energy and other clean energy technologies for the PECO service territory (Environmentalists' Statement No. 1-E (David Schoengold), Exhibit DS-5.), and should be adopted, with PECO funding in the amount of 0.5% ofthe Company's revenues as a mitigation measure for stranded investment.
125. A Sustainable Development Fund with purposes like the Long Island Power Authority's Clean Energy Fund, funded annually at $32 million, is a reasonable model for a PECO-funded fund. (Environmentalists' Statement No. 1-E (David Schoengold), Exhibit DS-5, p. 2)
^PECO Statement 1 (Thomas Hill), p. 10 and Exhibit TPH-2.
61PECO Statement No. 8 (Thomas LaGuardia), Exhibit TLG-1, Section 4, page 19; Exhibit TLG-2, Section 4, pages 15-16; Exhibit TLG-3, Section 4, page 14.
BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION
APPLICATION OF PECO ENERGY COMPANY FOR APPROVAL OF ITS RESTRUCTURING PLAN
PETITION OF ENRON ENERGY SERVICES POWER, INC. FOR APPROVAL OF AN ELECTRIC COMPETITION AND CUSTOMER CHOICE PLAN
DOCKET NO. R-00973953
DOCKET NO. P-00971265 (consolidated)
APPENDIX B
The Environmentalists' Proposed Conclusions of Law
Alan J. Barak, Esq. 1417 Blue Mountain Parkway
Harrisburg, PA 17112 phone: (717) 540-5106
fax: (717) 541-1970 e-mail: [email protected]
Table of Contents
Burden of proof 1
The three tests with which to assess the proposals 1
Mitigation 1
CTC considerations 2
Unbundling and timing of competition 3
Better choice plan issues 3
Universal service 4
Customer education 5
Brief ofthe Environmentalists Appendix B Proposed Conclusions of Law Page 1
Burden of proof
1. Ordinarily "the burden of proof in a rate proceeding is squarely upon the utility to establish that the rate is just and reasonable". Penn. Power Co. V Pa. PUC. 55 Pa. Commw. 477, 625 A.2d 719, 723 (Pa. Commw. 1993), alloc, den. 637 A.2d 288 (1994). See also Mon. 3/10/97 Tr. 413 (ALJ).
2. Given the long term effect of this restructuring case, PECO must prove its case with compelling evidence.
The three tests with which to assess the proposals
3. The Commission must use three tests to determine whether, and to what extent, to approve a restructuring order for PECO under the Act:
a. Is the proposal in the public interest? This, in turn, resolves to three material questions:
Is it good for the environment? Is it good for consumers? Is it good for competition?
b. Is the proposal consistent with the Act?
c. Are the rates and charges imposed by the proposal just and reasonable?
4. The Commission has the power and authority under the Act and under preexisting law, to select among the parties' proposals and the evidence of record, in fashioning a restructuring order in this docket.
5. The Commission has the power and authority under the Act to take official notice ofthe generic orders and proceedings developed under the Act, and apply facts recognized, to the order in this docket.
6. The Commission has the power and authority under the Act to require further, supplementary proceedings in this docket when the Commission finds that the timing and/or complexity ofthe matters at issue so require.
Brief of the Environmentalists Appendix B Proposed Conclusions of Law Page 2
Mitigation
7. The Act imposes upon the utilities the undeniable responsibility to mitigate their stranded costs because:
a. The definition of "transition or stranded costs" are certain costs "which the commission determines will remain following mitigation by the electric utility;"1 and
b. Another section of the Act directs the Commission to consider "the extent to which the electric utility has undertaken efforts to mitigate generation-related transition or stranded costs by appropriate means in a manner that is reasonable under all ofthe circumstances..." and cites several specific mitigation strategies which should be considered;2 and
c. The mitigation must be "commensurate with the magnitude ofthe ... stranded costs" and that the duty to mitigate exists not just up to the filing ofthe restructuring plan, but extends throughout the transition period.3
CTC considerations
8. The policy of the Act includes that the Commonwealth must resolve certain transitional issues in a manner that is fair to customers, electric utilities, investors, the employees of electric utilities, local communities, nonutility generators of electricity and other affected parties.4
9. Once the stranded costs have been quantified, the Commission must design the recovery mechanism which will"... provide the investors in Pennsylvania electric utilities with a fair opportunity to fully recover the amount of transition or stranded costs that the commission determines to be just and reasonable."5
166 Pa.C.S. §2803, definition of "Transition or stranded costs.".
266 Pa.C.S. §2808(C)(4).
366 Pa.C.S. §2808(C)(4).
466 Pa.C.S. §2802(8).
5i '66 Pa,C.S. §2804(14)
Brief ofthe Environmentalists Appendix B Proposed Conclusions of Law Page 3
10. The Act directed the Commission to "establish procedures for the annual review ofthe competitive transition charge" and to "reconcile the annual revenues received from the charge" with the approved level6.
11. The Act provides for a CTC collection period which would end on December 31, 2005.7
12. If the Commission failed to reconcile CTC/ITC collections the resulting customer charges would be unlawful; therefore the Commission should provide for reconciliation.
13. It would be unlawful to shift CTC/ITC responsibility among the rate classes through a mechanism that would reconcile revenues on a system basis rather than on a class basis.
14. The Act implies straight amortization of stranded costs.8
15. The Act, §2808(f), supports reconciliation of CTC/ITC charges and revenues to be structured to recover the authorized stranded costs in equal annual amounts.
Unbundling and timing of competition
16. The Act requires "the unbundling of electric utility services, tariffs and customers bills to separate the charges for generation, transmission and distribution."9
17. The Act, by its terms, permits the introduction of retail competition to 2/3 ofthe customers on January 2, 1999, and to all ofthe customers by January 2, 2000.
666 Pa.C.S. §2808(f).
766 Pa.C.S. §2808(b). A longer recovery period is permitted for "good cause."
866 Pa.C.S. §2808(f).
966 Pa.C.S. §2804(3)
Brief of the Environmentalists Appendix B Proposed Conclusions of Law Page 4
Better choice plan issues
18. The Act makes the electric distribution company the provider of last resort10 and provides a funding mechanism to cover the cost of those sen/ices for those unable to pay.11
19. The Commission has the power and authority to order a supplementary proceeding to address the details of the Better Choice Plan in order to anticipate the commencement ofthe Plan and, upon conditions meeting the Plan's threshold test, to provide forthe Plan's smooth operation.
Universal service
20. The Act explicitly incorporates renewable energy in the definition of phrase "universal service and energy conservation."12
21. The Act's inclusion of renewable energy in the definition of "universal service and energy conservation" requires PECO's restructuring plan to provide for the delivery of renewable energy.
22. The Act recognizes Chapter 56 as a most important consumer protection and it requires that customer services ("including meter reading, complaint resolution and collections") be "maintained at the same level of quality"13, and permits for no exceptions.
23. The cost of providing universal service is recognized as a "public service cost" in the Act,1 4 and must be the responsibility of all customer classes.
1 066 Pa.C.S. §2807(e).
"66 Pa.C.S. §2804(8) and (9).
1 266 Pa.C.S. §2803, definition of "Universal service and energy conservation."
1 366 Pa.C.S. §2807(d).
14 66 Pa.C.S. §2802(17)
Brief of the Environmentalists Appendix B Proposed Conclusions of Law Page 5
24. The Act requires that each electric distribution company shall implement an adequate and robust consumer education program.15
Customer education
25. In addition to the education program responsibility, the Act made the Commission responsible for ensuring that consumers have quality information to help them make sound decisions in the new marketplace.16
D;\WPdocs\Restnjcturing\PECO casesVlconcl-l.wpd
1 566 Pa.C.S. §2807(d)(3).
1 666 Pa.C.S. §2807(d)(2)
BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION
APPLICATION OF PECO ENERGY COMPANY FOR APPROVAL OF ITS RESTRUCTURING PLAN
Docket No. R-00973953
PETITION OF ENRON ENERGY SERVICES POWER, INC. FOR APPROVAL OF AN ELECTRIC COMPETITION AND CUSTOMER CHOICE PLAN
Docket No. P-00971265 (consolidated)
CERTIFICATE OF SERVICE
I hereby certify that I am on this 2 n d day of December, 1997 causing to be served today the Environmentalists' brief in the above-captioned proceeding by personal service upon following persons:
The Honorable John M. Quain PA Public Utility Commission 104 North Office Building Harrisburg, PA 17105-3265
The Honorable Robert K. Bloom PA Public Utility Commission 112 North Office Building Harrisburg, PA 17105-3265
The Honorable John Hanger PA Public Utility Commission 116 North Office Building Harrisburg, PA 17105-3265
The Honorable David W. Rolka PA Public Utility Commission 110 North Office Building Harrisburg, PA 17105-3265
The Honorable Nora Brownell PA Public Utility Commission 107 North Office Building Harrisburg, PA 17105-3265
Cheryl Walker Davis Office of Special Assistants PA Public Utility Commission 210 North Office Building Harrisburg, PA 17105-3265
ALJ Marlane R. Chestnut PA Public Utility Commission 1302 Philadelphia State Office Building Broad & Spring Garden Streets Philadelphia PA 19130
ALJ Charles E. Rainey, Jr. PA Public Utility Commission 1302 Philadelphia State Office Building Broad & Spring Garden Streets Philadelphia PA 19130
Paul Bonney / Ward Smith PECO Energy Company P.O. Box 8699 2301 Market St. Philadelphia, PA 19101-8699
Kenneth Mickens Office of Trial Staff PA Public Utility Commission P.O. Box 3265 Harrisburg, PA 17105-3265
Tanya J. McCloskey, Esq. Steven Steinmetz, Esq. Office ofthe Consumer Advocate 1425 Strawberry Square Harrisburg, PA 17120
Bernard Ryan / Karen Oill Moury Office of Small Business Advocate Suite 1102 - Commerce Building 300 North Second Street Harrisburg, PA 17101
Steven P. Hershey, Esq. Community Legal Services Inc 1424 Chestnut St Philadelphia, PA 19102-2505
David Kleppinger / D. Williamson McNees Wallace & Nurick 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166
Robert A. Mills, Esq. McNees Wallace & Nurick 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166
Terence J. Fitzpatrick, Esq. David DeSalle, Esq. Ryan, Russell, Ogden & Seltzer 800 North 3rd St., Suite 101 Harrisburg, PA 17102-2025
John J. Gallagher, Esq. LeBoeuf, Lamb, Greene&McRae 200 N. Third Street, Suite 300 P.O. Box 12105 Harrisburg, PA 17108-2105
Vincent J. Walsh, Jr., Esq. Southeastem PA Transp. Authority 1234 Market Street, Fifth Floor Philadelphia, PA 19107-3780
Craig A. Doll, Esq. 214 State St. Harrisburg, PA 17101
Linda C. Smith, Esq. Dilworth, Paxson, K. & Kauffman 305 North Front St., Suite 403 Harrisburg, PA 17101-1236
Dan Clearfield, Esq. Gerald Gornish, Esq. Wolf, Block, Schorr & S-Cohen 305 N. Front St., Suite 401 Harrisburg, PA 17101
Janet Miller, Esq. Malatesta, Hawke & McKeon 100 North Tenth St. P.O. Box 1778 Harrisburg, PA 17105-1778
Christopher B Craig, Esq. Office of Sen. Vincent Fumo Room 545 Main Capitol Bldg Harrisburg, PA 17120
Walter W. Cohen, Esq. Andrew J. Giorgione, Esq. Obermayer, Rebmann, M & H 204 State Street Harrisburg, PA 17101
Joseph J. Malatesta, Jr., Esq. Malatesta, Hawke & McKeon 100 North Tenth St. P.O. Box 1778 Harrisburg, PA 17105-1778
Joseph A. Dworetzky Hangley, Aronchick, Segal & Pudlin One Logan Square, 12 th floor Philadelphia, PA 19103
I also certify that I today had mailed by first class mail the Brief of the Environmentalists to the following persons:
Lance Haver 6048 Ogontz Avenue Philadelphia, PA 19141
Stephanie A. Sugrue, Esq. Duane, Morris & Heckscher 1667 K Street N.W., Suite 700 Washington, D.C. 20006-1608
John L. Munsch, Esq Allegheny Power Company 800 Cabin Hill Drive Greensburg PA 15601
Paul Russell, Esq. Associate General Counsel Pennsylvania Power & Light Co. Two North Ninth Street Allentown, PA 18101-1179
Donald A. Kaplan, Esq. Suite 500 1735 New York Ave., NW Washington, DC 20006-4759
Audrey Van Dyke, Esq. Naval Facilities Eng. Command Washington Navy Yard Building 218, Room 200 901 M Street, SE Washington DC 20374-5018
Usher Fogel, Esq. Roland, Rogel, Koblenz & Carr 1 Columbia Place Albany NY 12207
Paul L. Ziegler, Esquire Ziegler & Zimmerman, PC 355 North 21st Street, Suite 304 P.O. Box 1080 Camp Hill, PA 17011-3707
Ethan Giddings 217 Rodman Avenue Jenkintown, PA 19046
Michael L. Kessler Vice Pres and General Counsel American Energy Solutions, Inc. 111 South Alfred Street Alexandria, VA 22314
Susan Shanaman, Esq. 212 North Third St., Suite 203 Harrisburg, PA 17101-1505
Bruce A. Connell, Esq. DuPont Power Marketing Inc. 600 N. Dairy Ashford, ML-1034 Houston, TX 77079
Gary A. Jeffries, Esquire CNG Energy Services Corporation One Park Ridge Center P.O. Box 15746 Pittsburgh, PA 15244-0746
Gordon Smith, Esq. John & Hengerer 120017m Street, Suite 600 Washington, DX. 20036-3006
o
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Alan J. Barak (Sup. Ct. 67886) Attorney for the
Environmentalists Penn Energy Project 1417 Blue Mountain Parkway Harrisburg, PA 17112
v. 717-540-5106 f. 717-541-1970